Access to Banking and Its Value in Developed Countries: Evidence from the U.S. Marijuana Industry

Abstract

What are the (value) consequences of access to banking services in highly developed countries? Since examples without banking access have been hard to find in the past, most existing empirical evidence rests on evidence from developing countries. The unique legal situation of the marijuana industry in the U.S. creates the opportunity to empirically examine the value consequences of access to banking services in the U.S. Conflicting federal and state laws prohibit banks from engaging in business contracts while allowing marijuana firms to rely on all other institutions and the superior institutional environment. We use a mixed-method approach combining event study results with a survey and document significant value effects around two major events that impacted marijuana-related firms’ access to banking services. The findings are complemented by a survey taken by members of the marijuana industry in Colorado to provide more details on the precise channel that causes the capital market reactions. Overall we find that, banks still bear an incremental value to young firms in the U.S. and cannot be fully substituted by the good institutional environment and other financial intermediaries.