New guidelines from the US government are finally giving marijuana dispensaries recognition as legitimate businesses. Here’s how it’s going to benefit these two banks…
The pot industry just got another win under its belt.
After a groundbreaking 2013 that saw marijuana legalized in two states, Colorado and Washington, 2014 is the year that the sector begins crossing its T’s and dotting its I’s.
Here’s what I mean…
In a groundbreaking development, there are now official guidelines handed down to ensure that the pot business thrives for the long-term.
Part of this means that marijuana dispensaries can now be recognized as a business just like any other retail store.
Another part is that by being acknowledged as a legal entity, it can also conduct its banking just like any other business.
To take it a step further, dispensaries will be able to handle payment transactions without any repercussions, which many banks and credit cards previously shied away from.
Up until this point, companies like Visa (NYSE:V) and Mastercard (NYSE:MA) had discouraged the use of their cards to make purchases at legal medicinal dispensaries even though it wasn’t official policy.
They simply felt uncomfortable dealing with pot-related revenue, as marijuana is still outlawed at the US federal level.
You’ll recall the situation regarding Harbourside Health Center in Oakland, CA, which is the world’s largest medical marijuana dispensary with over 140,000 patients.
The case is still before the courts, but the federal government has threatened to shut it down, despite Harbourside being in full compliance with state laws and generates the second highest tax revenue for the city.
Because state-sanctioned pot outlets like Harbourside could still be exposed to federal action, financial institutions preferred not have anything to do with them altogether.
Now it appears that some of that discrimination is about to be scaled back…
With clearer guidelines being laid out by the Treasury Department, the banks are likely to be more receptive to earning some of that pot business going forward.
And from a revenue standpoint, that really isn’t a bad thing at all.
In 2013, it’s estimated that over $1.43 billion worth of legal marijuana was sold in the US. This year is expected to grow by 64% to $2.34 billion according to recent research.
Colorado is expected to contribute nearly $360 million to that amount in 2014.
By accepting other payment methods besides cash, transaction fees from purchases could amount to millions in revenue for credit card companies and the banks that offer them.
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In Washington last fall, Bank of America (NYSE:BAC) openly announced its willingness to accept dispensaries in the state as customers.
They’ve counted the Washington State government as one of their clients for years, and seeing as the state is already accepting tax revenues from pot shops, BoA sees no problem with embracing them as well.
With 94 branches across the state, nearly every licensed dispensary in Washington is within the vicinity of a BoA location, according to washingtondispensaries.us.
Since no other bank operating in Washington has yet to step up to the plate, pot shops in other states are sure to consider using Bank of America once the respective drug laws in their region are amended.
As for Colorado, even though Wells Fargo (NYSE:WFC) has not made any formal announcements yet on their stance in dealing with pot businesses, there’s a great deal of optimism because of their past history.
Up until 2011, Wells was the preferred bank for various dispensaries across the country, but the Company has kept its distance since, citing the “…complex and inconsistent legal environment.”
According to www.coloradomedicalmarijuana.com, there are nearly 450 dispensaries operating throughout the state. Wells Fargo meanwhile has close to 200 branches.
For both banks, they are large and well positioned enough to handle this fast-growing and very lucrative industry. So it only makes sense that they become the leaders.
Washington and Colorado are the starting points for the marijuana sector to blossom into a legitimate and efficient retail businesses, and clearly there are a lot of potential customers that they can attract.
The ability to supply the dispensaries with merchant terminals to accept cashless payments, and for the stores to no longer have to deposit or pay bills and taxes with huge stacks of cash each time they go to the bank — it’s going to be beneficial for everyone.
Though we may not see explosive growth in either BoA or Wells on the account of taking on marijuana business clients, investors need only to see the companies’ revenues grow from these profitable businesses to realize long-term value.