SMEs with legally restricted banking access: evidence from the US marijuana industry

Markus Merz () and Jan Riepe ()
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Markus Merz: Eberhard-Karls University of Tuebingen
Jan Riepe: Eberhard-Karls University of Tuebingen

Journal of Business Economics, 2021, vol. 91, issue 6, No 3, 797-849

Abstract: Abstract This paper examines how legally restricted access to banking services affects small and medium-sized enterprises (SMEs) in a highly developed country. Using a mixed-method approach, we examine the unique situation of the US marijuana industry. The industry benefits from the superior institutional environment in terms of legal protection and the labor market of the United States. However, due to conflicting state and federal laws it has no legal access to banking. We find significant value effects around three major events that affected future access to banking. These results indicate that banking access remains desirable for the marijuana industry. A survey taken by marijuana SMEs provides insights into what banking services are considered most valuable. We find that marijuana SMEs have problems to obtain financing and handle their transactions largely in cash, resulting in transaction inefficiency and high security concerns. Thereby, we shed light on the value of banks for SMEs in developed countries. We complement the literature on financial transaction services by highlighting the value for SMEs in developed markets.

Keywords: Access to banking; Financial development; Small and Medium-sized enterprises; Marijuana firms (search for similar items in EconPapers)
JEL-codes: D22 G21 M13 M21 O16 O43 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (1)

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DOI: 10.1007/s11573-020-01017-6

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