Abstract

PurposeDespite 2016 legalization of recreational cannabis cultivation and sale in California with the passage of Proposition 64, many cannabis businesses operate without licenses. Furthermore, federal regulations disincentivize financial institutions from banking and lending to licensed cannabis businesses. The authors explore the impact of legal cannabis business activity on California financial institutions, the barriers to banking faced by cannabis businesses, and the nontraditional sources of financing used by the industry.Design/methodology/approachThe authors use a mixed methods approach. The authors utilize call data for banks and credit unions headquartered in California and state cannabis licensing data to estimate the impact of the extensive and intensive margins of licensed cannabis activity on key banking indicators using difference-and-difference and fixed effects regressions. The qualitative data come from interviews with industry stakeholders in northern California's “Emerald Triangle” and add important context.FindingsThe quantitative results show economically and statistically significant impacts of licensed cannabis activity on banking indicators, suggesting both direct and spillover effects from cannabis activity to the financial sector. However, cannabis businesses report substantial barriers to accessing basic financial services and credit, leading to nontraditional financing arrangements.Practical implicationsThe results suggest opportunities for cannabis businesses and financial institutions if regulations are eased and important avenues for further study.Originality/valueThe authors contribute to the nascent literature on cannabis economics and the literature on banking regulation and nontraditional finance.

Full Text
Paper version not known

Talk to us

Join us for a 30 min session where you can share your feedback and ask us any queries you have

Schedule a call