Worcester Business Journal

14 Worcester Business Journal | October 3, 2022 | wbjournal.com BY LAURA FINALDI Special to WBJ S hortly aer Massachusetts residents voted to legalize recreational marijuana for adult use, officials at BayCoast Bank realized there could be a problem. Cannabis companies were finally allowed to sell their products legally within Massachusetts. e first two recreational marijuana stores, in Leicester and Northampton, generated nearly $24 million in sales in the first three months aer opening. But because marijuana is still illegal federally, the new companies didn't have anywhere to deposit their newly earned currency. "ey were walking around with large bags of cash, paying bills in cash, and creating a security and safety issue for the communities we support," said Gary Vierra, senior vice president and chief risk officer at BayCoast. "So we decided to fill a void: to provide a service to lower that risk to those communities and help the industry." at was how BayCoast, which is based in Swansea and has branches throughout Massachusetts, decided to enter the business of banking to Massachusetts' legally licensed cannabis companies. Today, it remains one of just a handful of Massachusetts banks and credit unions working directly with marijuana businesses, providing deposit and loan services to local companies, while adhering to strict reporting requirements in order to keep the feds off their doorstep. e lack of access to financing and banking for the cannabis industry has created a huge amount of inequality, said Shanel Lindsay, an attorney, business owner, and co-founder of Equitable Opportunities Now, which empowers people of color to be active in the Massachusetts marijuana industry. Outside of the few banks that provide services, business owners have limited options when it comes to financing, and the support that does exist usually comes with a huge price tag. "With a regular business, not only are banks running to you to get your business, but they're throwing credit at you at the beginning, if you meet certain standards," Lindsay said. "It's easy to get money, but that does not exist in cannabis. It's very difficult." Murky legality Adult-use marijuana establishments have generated about $3.4 billion in sales since the first stores opened in 2018, according to the Massachusetts Cannabis Control Commission, which regulates the industry. Year-to-date sales for 2022 have reached $962.4 million. Despite the law in Massachusetts, marijuana remains illegal at the federal level. is, the American Bankers Association said, has le banks in a tricky position: trapped between their mission to serve the financial needs of their local communities and the threat of federal enforcement action, the group said on its website. ABA called on Congress and federal regulators to provide greater legal clarity to banks operating in states where medical or adult-use marijuana is legal. "ose banks, including institutions For some banks, doing business with marijuana companies is well worth the risk Accessing a billion- dollar industry that have no interest in directly banking marijuana-related businesses, face rising legal and regulatory risks as the marijuana industry grows," ABA said on its website. e Cole Memorandum, a U.S. Department of Justice memo issued in August 2013, is a guideline for the federal government's position on marijuana law enforcement. e memo stated the federal government wouldn't use its resources to enforce marijuana prohibition in states that allowed it and regulated it responsibly. e memo was rescinded in 2018 by then-Attorney General Jeff Sessions. Vierra hopes for the passage of the so-called SAFE Banking Act, a bill to prohibit federal regulators from punishing banks that provide banking services to legitimate cannabis companies and any ancillary businesses – like plumbers or electricians – that work with them. e bill has been passed by the U.S. House of Representatives, but not the Senate. When it comes to its marijuana clients, BayCoast follows strict guidelines, including filing certain reports every three months, showing all activity of the businesses, and monitoring the flow of cash in and out to make sure it's not being diverted for illicit purposes, Vierra said. Needham Bank, which got into the marijuana banking business earlier this year, also adheres to stringent rules when it comes to its pot clients, said James Daley, senior vice president and director of structured finance. e bank spent the better part of two years figuring out how to enter the cannabis financing space, on the legal, operations, and marketing side, Daley said. But today, Needham Bank provides both deposit services and financing for cannabis companies. e bank has a staff of more than 30 devoted to cannabis banking, including professionals who have knowledge of how it works in other states with longer records of adult use. e bank consults with outside law firms to stay up to date on regulations and restrictions. e client base is a combination of startup level businesses and others with multiple years of success behind them, Daley said. Needham Bank has more than $3 billion in assets, so on the lending side, it competes with larger national players like Santander Bank, TD Bank, and Bank of America, which is an advantage, he said. "It's certainly not for everybody," Daley said of banking with marijuana businesses. "We're definitely seeing more banks in space, throwing their hat in the ring. I think they're jumping to conclusions on how easy they think it is. e barriers for entry are pretty high Adult-use marijuana sales in Massachusetts, in 2022 January: $112.8 million February: $110.2 million March: $120.3 million April: $123.1 million May: $120.9 million June: $122.6 million July: $132.5 million August (through Aug. 28): $119.9 million Source: Cannabis Control Commission PHOTO | NATHAN FISKE B A N K I N G & F I N A N C E FOCUS

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