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State’s bankers are trying to weed out the risk

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When Massachusetts banks look at recreational marijuana, they see the same opportunities that intrigue many investors and businesses: a fast-growing industry that could hit $1 billion in revenue by 2020 and will need lots of professional services, including banking.

But mostly, they see risk. And unless their entreaties to the federal government for greater comfort on the legal front are answered in short order, it seems unlikely any will provide banking services to the state’s pot market when it debuts in July, forcing cannabis companies to deal exclusively in cash and raising a host of related security and oversight concerns.

“We always think it’s better for businesses to be involved in the mainstream system,” said Jon Skarin, senior vice president of the Massachusetts Bankers Association. “That said, without a change in federal law — or at very least some kind of guidance from federal law enforcement — it will be very difficult for our members to do this.”

The biggest obstacle for banks, according to industry experts, is the recent decision by US Attorney General Jeff Sessions to end Obama-era policies that had protected most state-legal cannabis operations from federal prosecution under federal law. And the US Attorney in Boston, Andrew Lelling, followed Sessions’ announcement by pledging to go after “those who use the federal banking system illegally.”


Skarin said banking executives have concluded that the already-daunting job of handling marijuana money isn’t worth the risk that federal agents might come knocking.

“It’s one thing to deal with the [financial] regulators you interact with regularly,’’ Skarin said. Banks “have relationships with these folks and can talk through any issues. Law enforcement tends to be much more of a blunt object.”

The association has asked the state’s congressional delegation to consider supporting several bills that would offer legal protection to banks that work with marijuana companies.


“We’d like to see the issue addressed, but I’m not sure change is imminent down there,” Skarin said. In the meantime, he added, “a lot of institutions have done a lot of diligence and they’ve generally come to the conclusion that it would be too costly and challenging to do business in the marijuana industry.”

Before Sessions ended the federal protections, the number of banks and credit unions around the country providing services to marijuana businesses had grown to 400 as of September 2017, according to the Financial Crimes Enforcement Network, a unit of the US Treasury Department.

But the Trump administration has only added to the confusion around national policy. Treasury Secretary Steven Mnuchin followed Sessions’ announcement by saying he would keep, not rescind, Obama-era rules that protect banks that handle marijuana money. “I assure you that we don’t want bags of cash,” Mnuchin in early February told lawmakers.

Dick Gavegnano, chief executive of East Boston Savings Bank, said the situation seems so messy — and his other lines of business so brisk — that it’s not worth his time.

“What do I need that hassle for when I can barely keep up with what we’ve got now?” Gavegnano said. Marijuana “seems like such a labor-intensive thing, and it doesn’t fit into our culture,” he added.

The banking industry’s reluctance prompted Massachusetts Cannabis Control Commission chairman Steven Hoffman this week to suggest the state create a public bank for marijuana companies, saying it would make it easier to track sales of the drug and prevent cash from piling up at dispensaries.


But Skarin pointed to a 2011 study commissioned by the state that concluded a public bank — in this case, to fund various economic development projects — would be expensive to create and capitalize. He also noted that a marijuana bank would be cut off from federal insurance and the national electronic payment network, meaning the state would have to guarantee its deposits and create a novel system for moving money in and out.

“I’m not sure the state is willing to take on that risk,” he said. “And I don’t think it’s realistic to get something up and running by July.”

Dan Adams can be reached at