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Is the Banking Industry Going to Pot?

As more states liberalize marijuana-use laws, here's what they can learn from those financial institutions that have pioneered banking in the cannabis industry.


As more states liberalize marijuana-use laws, banks and credit unions wonder if they can and should capitalize on a huge new market by providing essential financial services to dispensaries and other pot-related businesses. Here's what they can learn from those financial institutions that have pioneered banking in the cannabis industry.


If you had any doubt that legal medical and recreational marijuana and related derivatives have become a very big business in the U.S., consider that a recent edition of Marijuana Business Magazine ran 154 pages. The issue was stuffed with advertising to serve the needs of marijuana retailers, medical-use clinics, processors, and producers. The goods marketed range from packaging and processing equipment to branded manufactured candies infused with cannabis to marijuana consulting services. There’s been an explosion in entire categories of companies and fledgling trade associations serving the business, as what was once a completely illegal trade has gone legal, or, at least, been decriminalized, in more and more states.


There’s already consumer research to draw from — including categorization of pot-using consumers into “personas.” New Frontier Data, an analytics firm that concentrates solely on the cannabis industry, breaks the customer base into nine segments, including “traditional lifestylers,” “discreet unwinders,” “social opportunists,” and “infrequent conservatives.” The top ranking reason for consuming marijuana-related products in New Frontier’s study was relaxation (66%) followed by pain management (42%) and finally by “making boring things more interesting” (19%).


No longer just a back alley business funded by the mob and other criminal elements, marijuana-based companies have become an industry watched by professional stock analysts, including some from BofA Securities and Canadian Imperial Bank of Commerce, and talked about on The Motley Fool, Seeking Alpha, and Yahoo Finance.


Is this growing business one that banks and credit unions want to serve, or should serve? It’s been a matter of intense debate from boardrooms to the halls of Congress. Among the marijuana news and advice websites there are few bank or credit union ads to be seen.


Yet several hundred mostly small banks and credit unions have ventured into this field. As of March 2019 493 banks and 140 credit unions did so, according to the Treasury Department’s Financial Crimes Enforcement Network.


Mixed Interest Among Banking Providers


Most financial institutions serving the cannabis business appear to keep a low profile. When you visit the main websites of these banks and credit unions there isn’t a clue about these specialized banking activities. A handful of active players maintain separate promotional websites for pot-related services or put out a press release about it, and the rest appear to rely on word of mouth and occasional mainstream news coverage.


Some institutions have entered the business and then exited. One example is Florida-based First Green Bank, which began serving that state’s marijuana industry and then mysteriously left it. The mystery was cleared up later, as reported by The Palm Beach Post, when it turned out that Seacoast Bank, which had made an acquisition offer, didn’t want to be associated with the trade.


Most large banking brands have avoided much involvement, if any, in this industry. In early 2019 Business Insider reported rumors that Citigroup has been mulling getting into the business. On the other hand, Jamie Dimon, CEO at JPMorgan Chase, responding to a question about his skepticism about Bitcoin and whether it was a better investment than marijuana, told CNBC Squawk Box that “it is, but we’re not banking pot either.”


On the other hand, expanding into serving marijuana-related businesses has appeal to banks needing new accounts, more deposits, and added loan volume. In a nationwide survey by Promontory Interfinancial Network, LLC, four out of five bankers polled favor the federal government allowing financial institutions to serve marijuana businesses.


The fact is that while it is booming nationally, the marijuana business exists in a twilight state economically, culturally, and even legally. New Frontier Data says that 33 states and Washington, D.C., have legalized cannabis for many medical uses. Ten states and Washington, D.C., have legalized marijuana for adult recreational use. (There are many nuances on what’s permitted, state by state.)


State laws are a patchwork of licensing schemes and requirements. In one state, for example, a firm must choose to be a seller, a processor or a producer, but not all three. In another, “vertical integration,” combining all three, is mandatory. Under multiple current federal laws, neither medical nor recreational sales of marijuana and other cannabis products are legal.


Hard to be in Business without Business Banking Services


Proponents of serving the pot business among banks and credit unions point out that legally licensed businesses all require banking services in some form. Prominent among these is a way to handle the large amounts of cash the marijuana business generates.


The cash deposits wouldn’t be so large if more retailers and dispensaries could accept credit and debit cards, but many traditional financial institutions and payment processors have declined to offer cannabis businesses merchant card accounts.


In the absence of being able to have a true banking relationship, marijuana-related businesses conduct high-value transactions using cash that other types of firms would never consider using currency for, including paying taxes.



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