Cannabis businesses often find it difficult to get banks willing to take them on as clients because of the risks posed by the federal prohibition of marijuana. Now new research has found that once a state legalizes cannabis, banking activity increases. While the study doesn’t directly link increased banking activity and state-level cannabis reform, it does imply the existence of the relationship.
The study was conducted by researchers from Drexel University, the University of Arizona, Scripps College and San Diego State University.
For their study, the researchers looked into banking trends in states that have legalized marijuana, examining the Federal Deposit Insurance Corporation’s bank regulatory filings in the 2011–2016 period. The researchers conducted an analysis of data from more than 150,000 bank-quarter observations sourced from almost 7,000 different banks located in 46 states.
They discovered evidence showing significant increases in banking activity, i.e., deposits and subsequent loans, in states that had legalized marijuana in comparison to those that had not. For example in their report, they highlighted that bank lending grew by between 6.5–8.6% and deposits grew by an average range of 3.1–4.3% after states legalized marijuana.
This is despite the fact that credit unions and banks may be penalized by federal regulators for working with businesses dealing with marijuana as the drug is still classified as a controlled substance under the Controlled Substances Act.
As of June 2021, 705 financial institutions had filed reports stating that they were serving marijuana clients. While this is a slight increase from the 687 institutions who filed requisite reports in the previous quarter, it’s still below the 747 recorded in late 2019.
In their paper, the researchers also discussed possibilities of why the risk from regulatory uncertainty didn’t reduce the willingness of banks to make loans or accept deposits. They reasoned that the increase suggested that banks were either optimistic that regulations would probably adapt to the needs of states that had legalized marijuana or unconcerned about the possible risk linked to accepting marijuana related deposits.
The researchers note that evidence for instances where these financial institutions lose their federally insured status or are criminally prosecuted is lacking, which makes sense why banks don’t necessarily respond to the legislative uncertainty for federal marijuana prohibition.
The group observed that as more state regulators issued statements supporting credit unions and banks that served the marijuana industry, financial institutions would become more optimistic about the chance that regulations will be adjusted in their favor with time. This would ultimately mean that cannabis sector actors such as Cannabis Strategic Ventures Inc. (OTC: NUGS) would have more options to choose from when they need different banking services.
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