Legalizing marijuana is one thing, banking on it is another. At least one bank in the area, however, is venturing into those waters – BayCoast Bank.
The Swansea-based community bank has created a “cannabis division” to accept deposits from the marijuana industry in Massachusetts, which allows recreational use by adults, and Rhode Island. The latter has decriminalized small amounts of marijuana but does not allow recreational use.
BayCoast is not lending directly to merchants in the marijuana trade, citing risks that include the potential for punitive action by federal officials against such businesses that could affect its cash flow.
However, BayCoast does lend to third parties that rent or lease space to such businesses, said Gary Vierra, BayCoast’s chief risk officer. He oversees the bank’s cannabis division.
Currently 33 states allow medical marijuana, including 11 that also allow recreational marijuana. Massachusetts and Rhode Island both have medical-marijuana programs.
BayCoast’s leaders concluded it would be a good business decision to respond to the need for banking services in that segment of the business community, Vierra said.
BayCoast has accrued between $16 million and $18 million in deposits from legal marijuana operations since December.
“We have about 30 businesses [in the marijuana trade] with accounts here,” Vierra said. “Most of them are from Massachusetts, but we have a couple from Rhode Island.”
Vierra said BayCoast is among only a small number of banks in the region that openly court business from the marijuana industry, though more banks “may be doing it quietly.”
Most banks, federally chartered or not, have been reluctant to wade into the marijuana business. As a result, he added, most medical- and recreational-marijuana businesses remain all-cash operations. Typically, they keep their money in safes or vaults and pay their bills with cash.
“The potential for criminal and civil liability under federal law and banking regulations remains a stumbling block for cannabis-related businesses,” said Caroline Kitchens of the nonprofit R Street Institute, a public policy research group based in Washington, D.C. “As a result, only about 30% of marijuana-based businesses report using a depository institution. This has created perverse incentives and given rise to robberies and tax evasion.”
The U.S. House on Sept. 25 approved a bill that would protect banks serving the cannabis industry from being penalized by federal regulators. A Senate version of the bill has yet to be voted on by the full chamber.
The American Banking Association supports the House-passed measure.
“The rift between federal and state law,” the ABA said, “has left banks trapped between their mission to serve the financial needs of the local communities and the threat of federal enforcement action.”
Scott Blake is a PBN staff writer. Contact him at Blake@PBN.com.
