Virginia Bank Bets on Cannabis to Bridge Revenue Gap

MainStreet Bancshares, a Virginia-based bank with $2.2 billion in assets, is pinning its hopes on the cannabis industry to boost its revenue and deposits. The bank, which operates a banking-as-a-service (BaaS) subsidiary called Avenu, has struggled to meet its targets since its launch in 2021. Now, MainStreet is exploring the cannabis market, aiming to attract clients and generate significant revenue.

MainStreet's strategic shift towards cannabis banking is a departure from its historical investment philosophy, which favors stability and predictability. The bank has traditionally maintained a compliance-centric mindset, focusing on tight control of critical regulatory functions and sidestepping issues that have plagued other bank embedded-finance ventures. However, the decision to enter the cannabis banking sector, which is characterized by regulatory uncertainty and high risk, seems to be a significant shift in the bank's approach.

MainStreet plans to offer cannabis-related services and products through its BaaS platform, Avenu. The bank aims to attract clients, including "a whale or two," to boost Avenu's revenue and deposits. The specific cannabis-related services and products that MainStreet plans to offer include cannabis banking, a cannabis app called Venu, and cannabis merchant services.

Cannabis banking will allow MainStreet to provide financial services to cannabis-related businesses, which have historically faced challenges in accessing banking services due to federal regulations. The cannabis app, Venu, will enable users to make cashless purchases at cannabis retailers, reducing the need for cash transactions and improving financial management for both users and retailers. Cannabis merchant services will help cannabis businesses accept electronic payments, further reducing their reliance on cash and enhancing their overall customer experience.

MainStreet's approach to cannabis banking differs from other financial institutions in several ways. The bank maintains tight control over the ledger that records daily transactions, along with customer identification and other critical regulatory functions. This compliance-centric mindset has helped MainStreet avoid issues that have plagued other bank embedded-finance ventures. However, it also means that MainStreet has to bear the full weight of regulatory compliance without the support of third-party fintech partners. Additionally, MainStreet is focusing on the cannabis industry, which presents both advantages and disadvantages, including the potential for significant revenue generation and exposure to the risks and uncertainties associated with the cannabis industry.

In conclusion, MainStreet Bancshares' strategic shift towards cannabis banking is a significant departure from its historical investment philosophy. The bank's approach to cannabis banking, which includes tight control over regulatory functions and a focus on the cannabis industry, presents both advantages and disadvantages. As MainStreet enters the cannabis banking sector, it will face challenges and uncertainties, but it also has the potential to generate significant revenue and attract new clients to its BaaS platform.