March 24 (Reuters) – The global banking turmoil threatens to squeeze U.S. cannabis companies already struggling with meager funding sources by drying up support from regional lenders and tightening fundraising from alternative avenues.

Most U.S. banks do not service cannabis companies as marijuana remains federally illegal despite several states legalizing its medicinal and recreational use and is a Schedule 1 drug.

Only about 10% of all U.S. banks and about 5% of all credit unions provide cannabis banking, as per analysts’ estimates.

“What this crisis means is probably the duration of the capital tightness in our space (will continue) because we’re seeing risk-off mentality,” said Morgan Paxhia, co-founder of cannabis hedge fund Poseidon Investment Management.

“We’re expecting banks to become more restrictive with lending and that’s going to have implications.”

The collapse this month of two U.S. mid-sized lenders — the Silicon Valley Bank and Signature Bank (SBNY.O) — and the Swiss government-brokered deal for UBS (UBSG.S) to buy Credit Suisse (CSGN.S) have sparked fears of a contagion and shredded investor confidence.

“Given they already have slim pickings when it comes to raising capital, nervous investors won’t help the situation,” said Rachel Gillette, partner and leader of Holland & Hart’s cannabis practice.

Smaller banks, regional lenders and credit unions that typically extend credit to the cannabis sector have been flagged by analysts as facing higher risk from the current turbulence. [Read More @ Reuters]