Needham Bank’s decision to serve businesses involved in Massachusetts’ growing cannabis industry will open the firm up to a lucrative new clientele, CEO Joe Campanelli said.
After spending the past 18 months exploring how it would enter the space, the $2.9 billion-asset bank last week became the state’s latest financial institution to bank the industry, following a deal with Boston-based Eastern Bank.
After learning that Eastern was looking to offload its newly acquired cannabis banking business, a division it inherited after purchasing Medford, Massachusetts-based Century Bank in November, Campanelli found his opening into the market.
"[Eastern] said they weren't going to support it. We said, 'That's great. We’ll go in and do a lift out,'" Campanelli recalled.
Despite initially expressing an eagerness to continue Century’s cannabis banking services, Eastern decided against it, saying the special handling required to bank cannabis-related businesses didn’t align with its approach to serving its business customers.
Needham and Eastern finalized the sale of the cannabis accounts last week for an undisclosed sum.
The deal, which Campanelli described as a transfer with no market premium, gives Needham bank more than 600 cannabis-related accounts, totaling around $500 million in deposits.
While choosing to bank cannabis clients comes with a substantial investment in technology and compliance, serving the sector opens the bank up to a unique clientele, Campanelli said.
"This industry is funded almost exclusively with equity, because these companies haven't had access to other parts of capital markets," Campanelli said, highlighting the hurdles businesses associated with the Schedule 1 drug face when trying to secure financing.
"The majority of that equity was coming from very successful business people that built great companies outside of the cannabis world," he said. "When you say, ‘Hey, we’ll bank your cannabis investment, and by the way, what about all your other operations?’, it gives us a nice lead into the door in establishing relationships with successful businesses. And we find the ability to cross sell is really opportunistic."
To maintain the division’s track record and expertise in the space, Needham brought on all 25 employees who were involved in Century’s cannabis banking services, including Paul Evangelista, who launched and headed the venture over the past nine years.
Century was the first bank in Massachusetts to take on cannabis clients, according to the Boston Business Journal.
"Century had a team in place who have been at it since 2012. They understand the compliance commitment," Campanelli said.
Poised for growth
Campanelli, like many bank executives that choose to venture into the cannabis banking space, sees the benefit of becoming one of a small number of financial institutions willing to serve the emerging sector.
"It's very rare in our lifetime that you see an industry that's nonexistent all of a sudden become a multibillion-dollar business in such a short period of time," Campanelli said.
Despite the industry’s growth, cannabis’s designation as a Schedule 1 drug has caused most banks to remain hesitant to bank the sector.
Legislation like the SAFE Banking Act, which would provide protections for financial institutions that open cannabis-related accounts, has yet to pass, despite being introduced every Congress since 2013.
But Campanelli said he is confident the sector will continue to grow.
Cannabis sales reached $2.54 billion since the drug was legalized for recreational use in Massachusetts at the end of 2018, The Associated Press reported in January, citing data from the Cannabis Control Commission.
Cannabis excise taxes totaled $74.2 million in the state between July and December 2021, outpacing alcohol, which garnered $51.3 million.
"I think that's going to continue to grow and expand," Campanelli said. "[The state’s] not going to give that up."