The cannabis industry is thriving, with the United States market yielding $40 billion$40 billion in 2021 alone. Nonetheless, the plant’s illegal status means that banks are unlikely to take on the risk that comes with offering financial services to cannabis companies. 

Consequently, this is somewhat hindering the market from progressing at its full potential. However, there appears to be a silver lining, with a new study showing that banking activity has surged in states with legal cannabis markets.

Researchers sought to discover banking trends in legal cannabis states. In order to carry out their study, they analyzed regulatory filings that were submitted with the Federal Deposit Insurance Corporation (FDIC) between the years 2011 and 2016. 

“Banking activity (deposits and subsequent loans) increase considerably in legalizing states relative to non-legalizing states,” reads an excerpt from their written evidence.

Cannabis banking activity is rising in spite of risk

Although credit unions and banking institutions may endure the long arm of the law if they dabble in transactions and partnerships with cannabis companies, the risk does not seem to be deterring activity in this federally controlled area.

The study inspected data that was pulled “150,566 bank-quarter observations from 6,932 unique banks located in 46 different states.” According to the findings, the average rate of financial deposits soared from 3.14-4.33 percent after legalization, while bank lending climbed by 6.54-8.62 percent.

“While uncertainty can result in overly cautious behavior and hinder economic activity, we do not find evidence of this with cannabis laws and the banking industry,” the authors speculate in the new research report, titled, “THC and the FDIC: Implications of Cannabis Legalization for the Banking System.”

By June 30 of last year, a total of 706 financial institutions had submitted requisite reports confirming their involvement with cannabis clients. In comparison with the previous quarter, that’s 17 more, but less than the 747 that declared their partnerships with cannabis companies in late 2019.

The rising number of banks serving cannabis companies “may suggest that banks were either unconcerned about the potential risk associated with accepting cannabis related deposits or optimistic about the chances that regulations will adapt to the needs of legalizing states,” the paper continues.

Allowing banks to work with state-legal cannabis businesses could prove beneficial

According to the secretary of the U.S. Treasury Department, allowing banks to serve state-legal cannabis businesses would “of course” simplify the workload for workers at the Internal Revenue Service (IRS). 

National Credit Union Administration board member Rodney Hood also publicly expressed his views on the topic of cannabis banking recently. 

In a Marijuana Moment article, he stated that legalization is inevitable. With that being said, Hood believes that the government should work swiftly to resolve banking predicaments.

“The risk from regulatory uncertainty did not decrease banks’ willingness to accept deposits or make loans,” concluded the study authors, who carry out their investigations at Drexel University, San Diego State University, Scripps College and University of Arizona.