Cannabis is legal in one form or another in over 40 states and territories, with industry sales conservatively estimated to exceed $30 billion in 2022. As this booming market shows no sign of slowing down, a steadily increasing number of financial institutions have built programs to take advantage of the significant revenue opportunities presented by banking cannabis-related businesses (CRBs). Still, there remain a number of financial institutions that have kept their doors shut to CRBs as they feel the potential rewards associated with banking them are outweighed by the risks inherent to banking a cash-intensive, federally-prohibited industry. If this is your bank’s current position, I would encourage you to reopen the conversation because cannabis banking is inevitable, and here’s why.
Over the last twelve months several states have legalized marijuana for medical and/or adult-use. During the 2020 November election alone, one state voted to legalize medical marijuana (Mississippi), three approved adult-use (Arizona, Montana, New Jersey), and one took the unusual step of legalizing both medical and adult use at the same time (South Dakota). All of these ballot initiatives were approved by a clear majority of voters, ranging from 53.4% for adult-use in South Dakota all the way up to an emphatic 66.9% in New Jersey. In 2021 we also saw state legislatures legalize adult-use in New York, Connecticut, Virginia, and New Mexico, as well as medical in Alabama. Any regional gaps on the marijuana legalization map are rapidly filling in.
So just how big is this market opportunity? According to Marijuana Business Daily, the cannabis industry is expected to grow by 29.3% in 2022 with sales that could exceed $30.5 billion by 2022. Compare this with other consumer packaged goods segments like beer or snack foods that are forecast to show anemic compound annual growth rates of 5.2% and 3.37% respectively over the next couple of years. This is to say nothing of the opportunities presented by the industries and individuals that support direct marijuana businesses – think lawyers, accountants, plumbers, CRB employees, etc. If you take those ancillary businesses into account, Marijuana Business Daily suggests that the overall impact of the cannabis industry on the US economy could be as high as $92 billion in 2021 alone.
This economic opportunity makes it unlikely if not impossible that cannabis-related businesses won’t soon be at your doorstep, if they aren’t already. In fact, we’ve found that some financial institutions are actually developing cannabis programs expressly because they risk losing valuable customer relationships if they don’t. A surprising number of FIs come to us because they’ve been approached by a current customer that’s become involved with the cannabis industry as an operator or investor. This is often the case in agricultural communities where, in one example, the choice to establish a cannabis program was the direct result of a decision made by a farming family that had a multi-generational relationship with the bank to pursue a cannabis growing license. In another, a southern financial institution built a cannabis banking program to retain a relationship with a single customer that had pivoted from growing flowers in their greenhouses to cannabis. Neither of these customers wanted to leave, but they knew they’d have to if their banks did not adjust their policies to accommodate CRBs.
Despite these examples of customers sometimes being the driving force behind developing a cannabis program, one of the most common concerns we still hear from financial institutions regards reputational risk. The thinking goes that if customers find out their financial institution is banking CRBs then they will abandon the “weed bank” for more sober institutions and take their deposits with them. However, in my experience over the last four years helping to develop cannabis banking programs across the country, I’ve yet to hear of any financial institution that’s lost a significant customer relationship solely because they’ve developed a cannabis banking program. All you have to do is look at the call reports of financial institutions before and after they start banking CRBs to realize their customer numbers and asset sizes consistently go up. The reality is that American attitudes towards the legalization of marijuana have shifted significantly since the 1980s, and according to the Pew Research Center over 90% of Americans now support cannabis legalization. Should you need further proof that attitudes have changed you only need to look at the strong bipartisan support in the House of Representatives for the SAFE Banking Act (HR 1996), a bill that would codify safe harbor for financial institutions banking legal marijuana businesses. It seems the only thing that Congress can agree on is that financial institutions should be able to confidently bank CRBs.
I say cannabis banking is inevitable because a combination of widespread destigmatization, a steady march of state-by-state legalization and the immense business opportunity of this new industry means that financial institutions will soon —if they haven’t already — be faced with the choice of benefiting from this market or losing customers to it.