Cannabis, Jamie Dimon and Big Banks
Marijuana Moment recently reported on Jamie Dimon’s thoughts on cannabis. The “CEO of the financial giant JPMorgan Chase ‘probably would’ start providing banking services to marijuana businesses if federal law changed to permit it.”
Dimon also said that reform is just part of Chase’s calculus, “We do bank some crypto companies and very carefully. We are responsible in the law to fight sex trafficking, money laundering [and] tax avoidance.”
Not surprisingly, cannabis folks jumped on this glimmer of hope.
Hip, hip hooray
Dimon’s statement – if it leads to action – is noteworthy. He intentionally commented on a Chase podcast. And he is the most respected banker on Wall Street.
I need, however, to tap the brakes and discuss...
How banks think
In essence, banks make money by not losing money. They seek business but also look to minimize financial & reputational risk. While commercial banking fees are nice the real juice comes from investment banking and capital markets activities i.e. doing big deals with big clients. Right now, only a handful of MSOs can do deals that hit the $250M minimum deal size typically required by ‘bulge bracket’ banks.
Banks take a portfolio approach to serving industries. They look for a target return on risk weighted assets on their lending and consider opportunity cost in deploying funds and resources.
Balancing industry concentration is also important. They may want cannabis market share but not too much relative to their other target sectors and deployable capital.
These policies will guide how they play in cannabis.
Don’t start the party yet
For banks, cannabis is not a lay-up versus other sectors. Weed firms bring: fresh risks (cannabis is a new industry for them), confusion & hassle (misinformation and stigma are pervasive) plus more compliance requirements around preventing AML and organized crime.
Cannabis clients will pay for the extra due diligence, compliance and oversight with more fees, covenants, and reporting.
Dimon’s soft commitment
Words matter in these situations.
“Probably would” is not the strongest statement from an experienced public speaker, and it came with a caveat around federal reform. Dimon also hedged a bit by saying “We support the [regulatory] intent, but I would have to see the actual words in the actual law.” Of note, SAFER is not in the Congressional cards right now.
Other banks may not follow Chase
Dimon doesn’t speak for all large banks. Consider Canada’s experience. Only half of the 6 largest banks serve the 6+ year old, US$4B Canadian industry.
MSOs would be wise to heed U2’s lyrics in Mysterious Ways “If you want to kiss the sky you better learn how to kneel”
#JamieDimon #banking #SAFER #JPMC #lending