By Adam Stettner
The evolving landscape of the cannabis industry presents a lucrative opportunity for small to mid-sized and regional banks, yet many of them remain on the sidelines, wary of engaging with this sector. This hesitation not only limits their revenue potential, but also impedes the growth and stability of the cannabis industry itself.
So much of the conversation is about how this negatively affects the cannabis industry, but by not working in the sector banks are missing out on significant revenue streams and the opportunity to build robust deposits – forcing specialized entities to step in to fill the void with targeted lending services. These efforts present opportunities for banks to partner with specialized lenders to increase their deposit base.
The reluctance of banks to fully engage with the cannabis industry primarily stems from legal and regulatory complexities. Despite the legalization of cannabis in roughly 40 states, it remains a Schedule I controlled substance at the federal level in the United States. This discrepancy creates a legal gray area, making some banks apprehensive about potential legal repercussions, particularly on the federal level.
Further, the intricate regulatory requirements for providing banking services to the cannabis industry, such as stringent reporting and compliance mandates, add layers of complexity and cost that some banks may find daunting. Despite this, well over 800 banks currently service the cannabis industry, an increase of 100% since 2018 (FinCen, 2021).
Missing Out
Banks are missing the chance to build deposits. By providing banking services, banks could attract substantial deposits from the cannabis industry; enhancing their liquidity and overall financial health while broadening access to banking services in expanding markets.
By avoiding the cannabis sector, banks forgo substantial revenue opportunities. The cannabis industry has shown growth and resilience, with increasing consumer acceptance, demand and expanding legalization. Engaging with this sector could create new income streams through increased deposits, account fees, transaction fees and other financial services tailored to cannabis businesses.
Here Comes The Money
Like in most emerging industries, specialty lenders emerge to offer specific financial solutions tailored to the industry. It’s critical that these specialty lenders understand the needs of the industry and provide the liquidity necessary to unlock growth for businesses like those operating in the cannabis space. This liquidity supports expansion and operational needs.
Banks can leverage partnerships with specialty lenders to further the deposit base and growth in the cannabis industry without directly engaging in lending to the space. Through such collaborations, banks can facilitate access to capital for cannabis businesses, earning fees and increasing their deposit base in the process. These partnerships allow banks to build relationships with cannabis businesses, fostering loyalty and potentially converting them into long-term banking customers. It’s basically giving them a running start on a previously untapped market that is only getting bigger.
Time To Grow
To capitalize on the opportunities presented by the cannabis industry, banks need to mobilize. Those that have not yet entered the space should be investigating the industry, and those limiting their services to deposits should consider broadening services to increase cash flows and loyalty among their deposit base. Banks already have robust compliance programs, and by working closely with regulators, trade organizations and operators can find the comfort they need to expand into the cannabis sector.
By partnering with specialty lenders like FundCanna, banks can further engage with the cannabis industry indirectly, benefiting from additional revenue streams while supporting the sector’s financial needs. Such partnerships not only bolster banks’ financial health through increased deposits and fees but also contribute to the legitimacy and stability of the cannabis industry.
While the cannabis industry presents undeniable challenges for banks, it also offers significant untapped potential. By exploring partnerships with specialty lenders and adapting to the evolving regulatory landscape, banks can unlock new revenue streams, enhance their deposit bases and play a pivotal role in the growth and legitimization of the cannabis sector. The time is ripe for banks to reassess their stance on the cannabis industry and consider the long-term benefits of engagement and support.
