On August 6, Ohio became the 21st state nationwide to launch licensed and regulated adult-use cannabis sales. By Aug. 17, the state had recorded 276,125 transactions totaling $22.5 million – more than double its medical-only cannabis sales – and is on track to exceed $3.2 billion in sales by 2030. Neighboring Michigan recorded $3 billion in cannabis sales last year. In nearby Illinois, total cannabis sales exceeded $2 billion during the state’s 2024 fiscal year. The growth of these midwestern cannabis markets – and others across the country – demonstrates the tremendous financial opportunity for participants in this industry, including the banking sector.
Besides market size, another valuable signal bankers should track is license growth. Ed Keating, the co-founder of Cannabiz Media who oversees the company’s data research efforts, advises financial institutions to “look underneath the hood with licensing because licensing and license growth is a proxy for the health of the industry.”
Keating focuses on the three primary activities in the cannabis value chain: cultivation, manufacturing and retail stores. These categories are the core functions of the cannabis economy and offer a snapshot of market dynamics.
In the second quarter of this year, there was a notable increase in the number of new licenses issued—1,652 across all segments—up significantly from 862 in the first quarter. This suggests a surge in interest and activity in the cannabis sector. However, the broader picture offers some clarity. For example, Michigan saw an extraordinary spike in cultivation licenses, which, upon closer inspection, was largely due to existing growers expanding their sites rather than a nationwide trend. Removing the outlier data from Michigan and Oklahoma, which implemented a four-year moratorium on new licenses, reveals that a more modest figure of 985 new licenses issued in Q2.
So, what does this all mean in terms of assessing banking opportunities in the cannabis sector?
Keating advises bankers to develop a strong understanding of the regulations that govern how states track, measure and sell cannabis. For example, some states require a distribution license to move cannabis from point A to point B; in other states, it’s an assumed permission. Bankers should be familiar with the value chain and how it might impact licensing in the states where they want to do business.
Further, bankers should understand whether the state has limited or unlimited licenses. In limited license states, the license has more value, giving the license holder potentially a greater certainty of success. As part of a comprehensive risk assessment, financial institutions can gain insights from other limited license states as to the success of those license holders, their valuation and what their cash needs may be.
As more states legalize adult-use cannabis and expand their programs, there’s no doubt we’ll continue to see strong license growth in the years ahead. As Keating notes, this “normalizes the whole industry and makes it more a driver for growth.” States opening recreational cannabis markets in the coming years include Minnesota, Kentucky, Delaware, Rhode Island and Virginia. And several other states, including Florida, South Dakota, Nebraska and Idaho have measures legalizing recreational cannabis on the November ballot.
Until there is federal reform on cannabis, however, states will continue to implement their own unique rules and regulations on how they structure their markets, making “each state its own sovereign nation,” as Keating puts it. To fully understand how the state program is run and to access the data and information they need to ensure a compliant cannabis banking program, bankers should establish relationships with both the cannabis and bank regulators in the states in which they want to do business.
Finally, just like any other high-risk line of business, bankers need to extend enhanced due diligence principles to the cannabis-related business customers they want to serve. It’s important to know what kind of business experience they have if their capital reserves will carry them through the long licensing process, and if they are an attractive long-term target for the financial institution, not just for their deposit balances, but also for their creditworthiness.
Market dynamics are rapidly changing, creating new opportunities for financial institutions to support CRBs in their communities. By establishing policies and procedures, implementing an effective technology platform, creating a scalable pricing structure and developing expertise and relationships now, bankers will have a competitive advantage as more financial institutions enter the market.
