Last fall J.P. Morgan Chase made a strategic decision to no longer facilitate trades of cannabis stocks for its customers. At almost the same time, Bank of America exited as a client a DEA -approved scientific laboratory that was studying the effects of cannabis. Why? Is it because the large money center banks have a cultural issue with cannabis? Considering that more than 70% of Americans support legalized adult sale and use of cannabis, it is difficult to believe that they are worried about customer backlash.

The truth is that the cannabis market is just not big enough yet for them to be concerned about. Am I really saying that a $25 billion market is not big enough for them to be concerned about? Yes! That is exactly what I am saying.

The largest banks in the United States are so massive that they have little interest in taking on the regulatory complexities that come along with cannabis. There is just not enough profit in the business to have to solve it. And, if they get it wrong (i.e., fail to put appropriate AML/BSA procedures and train staff throughout their massive retail complex), the consequences could be significant. I will leave aside that I know for a fact through my interactions with the industry that the money center banks already have a massive amount of legal and illegal cannabis funds flowing through their retail networks. Instead, I will maintain that they will not openly embrace cannabis clients unless they look like and generate the profit like larger corporations that are the bread and butter of the money center banks.

So, the same must be said of crypto right? Not exactly! The money center banks have been able to spurn crypto in the past for the same reasons they spurn cannabis. But crypto represents a real disruption to the entrenched banking system. We are entering a world of blockchain, defi, digital currency, NFT’s and stable coins that is accelerating at a very rapid pace. If the money center banks don’t adapt quickly, they face a considerable attrition in their business models. Don’t believe me? Consider where J.P. Morgan is spending their money and this recent quote from its CEO Jamie Dimon: “the bank needs to pay top dollar for talent and make other investments to beat back the threats from both traditional financial institutions and upstart fintechs. It’s a lot of competition, and we intend to win. And sometimes that means you’ve got to spend a few bucks.” American Banker, January 14, 2022.

For more insight on big banks and cannabis banking, listen to our COO’s interview on the Investor Ideas Podcast.  

To learn more about how HDCS assists community banks and credit unions on how to safely bank the cannabis industry visit our website at hdcompliance.com or contact me directly at a.montgomery@hdcompliance.com.

Andy Montgomery

Founder & CEO  |  HDCS, Inc.