Adding Berkshire to the count, the number of financial institutions serving the Massachusetts cannabis industry has now climbed to 16. iStock illustration
The $12.3 billion-asset Berkshire Bank is now the largest lender to have made a foray into cannabis banking in Massachusetts. But experts say despite a national operator’s planned departure from the state, the regional bank’s entry of the into the sector signals opportunity still exists for banks to serve marijuana-related businesses not just in the state, but also in other “booming” markets around it.
Berkshire’s cannabis banking unit will focus on Massachusetts, Connecticut, New York, Rhode Island and Vermont.
Adding Berkshire to the count, the number of financial institutions serving the Massachusetts cannabis industry has now climbed to 16.
Access to New Deposits
Stacy Litke, vice president of banking programs at cannabis banking compliance software provider Green Check Verified, said this is Berkshire’s way to attract deposits and new customers in Massachusetts and other up-and-coming markets in New England amid an overall flat deposit market.
Litke’s firm partnered with Berkshire in the bank’s new cannabis banking foray and is a frequent consultant for financial institutions that bank the legal marijuana industry.
Berkshire Bank declined to comment for this story.
“[Cannabis markets in] Connecticut, Vermont, New Jersey, and New York are booming – there is plenty of markets around Massachusetts. There are brand-new [medical cannabis] programs and business licenses issued in and around Massachusetts that are needing banking relationships and loans,” Litke said.
“[Other banks in the region were] already lending to these businesses before offering the business banking, and this is just a way for them to get deposits to lend,” she added.
Litke noted that a regional bank like Berkshire can have better success in meeting demands in different geographical markets compared to smaller banks and credit unions with limited coverage areas.
To date, the local cannabis banking sector’s dominant player has been Needham Bank, which acquired the former Century Bank’s long-time cannabis business from Eastern Bank last year. It’s joined by other notable names like Dedham Savings Bank, Springfield-based Freedom Credit Union, Swansea-based BayCoast Bank, Fall River-based BankFive, Hudson’s Avidia Bank, Marlborough’s Main Street Bank and Woburn-based Northern Bank.
Premium Banking and Profits
So far, though, this growing crowd of financial institutions has been beneficial for both cannabis licensees and banking providers, Litke said. Marijuana businesses will have more options and favorable rates for banking and lending services, while banks and credit unions still can be profitable by offering specialized banking services and rates.
“In Massachusetts, increased competition in financial institutions has driven down financing. Right now, it’s becoming more of a price war. It’s a deposit play for these institutions where [deposit yield] rates have gone up and it’s getting harder to get funds,” she said, noting that Main Street Bank and Northern Bank have already dropped cannabis banking account fees to zero.
Currently, cannabis lending still commands a premium. Alternative lenders’ interest rates are sitting at between 11 percent and 18 percent, while commercial bank loan rates may be 1 percent to 2 percent above the lending rates they offer conventional business customers, which hover around 7 percent, Litke said.
“I think, for the right institution, cannabis banking can be a very profitable,” Larry Spaccasi, a partner at law firm and banking consultancy Luse Gorman, said. “It takes a lot of study and preparation to get into that specialized field of banking. But if you can get the infrastructure in place, experienced talent and you can do it right, it’s a very profitable business and can be very safe type of operation.”
Spaccasi also noted that financial institutions looking to venture into cannabis banking need to learn about the players, the reputational risks and complex regulations in the sector first before diving headfirst in order to make a profit.
A Maturing Mass. Market
Massachusetts made history as the first East Coast state to legalize recreational cannabis shops in 2018, after it legalized non-medical cannabis in 2016. As it turned five years old this year, the sector is “flattening out a little bit” and “becoming a maturing market” such as California and Colorado, Litke said.
“During the pandemic [in 2020], sales everywhere are sky-high as people can afford to buy because they are just at home. In 2021, people are usually driving to Massachusetts to buy; it was an inflated peak,” she said.
National cannabis company Trulieve has said it will pull out of Massachusetts this year, citing market pressures. But Litke said that it’s not necessarily an indicator of a market in trouble. Instead, with most of the Northeast having legalized marijuana – New Hampshire has decriminalized the drug but only allows its consumption for medical purposes – people are not traveling to the Bay State anymore just to buy marijuana, she said. This loss of a revenue source could mean it made more sense for the firm to put its resources someplace with an up-and-coming and booming cannabis market, she said.
“Other states are coming up with their own program and legalizing recreational adult-use, which presents broad growth opportunity moving away from Massachusetts,” Litke said.
The local marijuana market is still growing. Cannabis Control Commission statistics show growth persists in the industry as gross sales of marijuana establishments in the state already reached the $5 billion mark as of Aug. 31 after “record sales months” of June, July and August.
Nika Cataldo
Bay State cannabis businesses recorded only $4 billion in sales in 2022.
“Massachusetts continues to hit record sales even as other states have come online. In fact, our neighboring states Maine, Rhode Island, and Connecticut also had record sales this summer,” commission Executive Director Shawn Collins said in a statement released along with the statistics. “Demand for tested, quality cannabis products remains strong in the region, and consumers shopping in other states have not impacted Massachusetts’ success.”
Since January, 53 marijuana retailers and four delivery operators opened in the state. Sixteen cannabis establishments have closed in Massachusetts since 2018, some which went out of business and some which saw their licenses expire or be revoked.
To date, there are 317 marijuana retailers, nine delivery couriers, eight delivery operators and one microbusiness with a delivery endorsement in Massachusetts.
As more and more financial institutions enter the cannabis sector and as changes in financial regulations are made, Litke said the cannabis industry will eventually normalize in Massachusetts where marijuana shops “will be just like your regular mom-and-pop liquor store around the corner.”
Correction 2:42 p.m., Sept. 22, 2023: Due to a misunderstanding during the reporting process, an earlier version of this story misstated Berkshire Bank’s past loan customers. Berkshire Bank had not knowingly loaned money to companies involved in the cannabis industry prior to establishing its cannabis banking unit.
