MainStreet Bancshares in Fairfax, Virginia, is pinning its hopes on cannabis as a solution to the revenue woes that have dampened the rollout of its banking-as-a-service subsidiary.
After unveiling it in 2021, the $2.2 billion-asset MainStreet
Though its compliance-centric mindset has helped MainStreet neatly sidestep
MainStreet targeted 2024 as the year Avenu would surpass $200 million in deposits and reach breakeven. As of Dec. 31, MainStreet reported $41 million in Avenu deposits. Expenses continued to outpace revenues in 2024, resulting in a pretax loss of $3.6 million for the segment. After failing to hit its goals, MainStreet disclosed last week that it would impair the value of Avenu's software, writing it down to its current market value. The decision prompted a $19.7 million fourth-quarter charge and a $16.2 million loss for the three months ended Dec. 31.
According to CEO Jeff Dick, the impairment decision is "independent of Avenu's future viability," amounting to a point-in-time acknowledgment of the solution's fiscal position. "When the accountants looked at it they said, 'We had projected [a certain amount] of revenue for this in 2024.' It wasn't there."
Cannabis and some whales
MainStreet is working on two tracks to cure Avenu's revenue shortfall. On one, the bank has redoubled efforts to attract clients, including "a whale or two that we can bring in and really get things stepped up," Dick said. "The prudent thing to do now ... is get it out there. Get customers on it. Get it doing what we say it can do. Get to the point where it's producing positive revenue."
The other track involves cannabis.
MainStreet began exploring the potential of cannabis banking in late 2023, according to Dick. The bank expects to launch an app this spring permitting users to make cashless purchases at cannabis retailers. MainStreet's planned Venu app would reside on the Avenu platform. Users would download the app, open a MainStreet account, then fund it with an automated clearing house or ACH transfer from their primary bank. For retailers, Venu is structured as a typical merchant solution. "They get a virtual app for checkout, dashboard, all the reports, everything a normal merchant solution provides, except in this case it's our closed-loop solution," Dick said.
Cash loaded on the Venu app would plump up MainStreet's deposits. In-store purchases would generate noninterest income. Dick spoke admiringly of Block, how it was able to cement a leading market position by setting a low price point, enough to make a profit but keep the product highly competitive. MainStreet hopes to do the same with Venu. Its immediate challenge, however, is to onboard cannabis retailers "so when you download the app as a customer you'll have stores to go to," Dick said.
"It's all about giving consumers another way to pay ... that takes some of the cash out of that business."
No guarantees
Beau Whitney, chief economist for both the National Industrial Hemp Council and the National Cannabis Industry Association, predicts legal cannabis sales would hit $35 billion in 2025 and rise to $87 billion over the next decade. A significant chunk of those sales are still transacted in cash. Golden, Colorado-based Safe Harbor Financial, which has been offering cannabis banking services since 2015, estimated recently that 70% of cannabis businesses operate entirely in cash.
While statistics like that would seem to indicate bright prospects for Venu, Tyler Beuerlein, Safe Harbor's chief strategic business development officer, said success is by no means certain for the MainStreet app. For one thing, it will be competing against several established apps with wide distribution. "Not to discount what [MainStreet] has done, but that model has been around since 2016," Beuerlein said.
More broadly, the cannabis industry has matured over the past three years. Where banks entering the field could once count on wide-open opportunities, new arrivals today are more likely to encounter fierce competition. "The industry has matured to the point where I would say the dominant players have established themselves," Beuerlein said. "It's going to be very difficult to replace them."
Indeed, Beuerlein predicted the number of financial institutions exiting cannabis in 2025 would outnumber that of new ones entering. "It's become a situation where an institution entering the space either needs to be prepared to offer a full suite of services, or they're never going to get the business to justify the cost of developing the cannabis program and launching it into a market," Beuerlein said. "That's just the harsh reality of the market we're in."
At the same time, the fact cannabis remains illegal at the federal level, despite 39 states allowing medical or recreational use, has blocked the industry from accessing most major payment processors, including Mastercard, Visa and American Express. A common workaround, involving withdrawals from so-called cashless ATM machines inside cannabis retailers, is actually unauthorized, with many payment processors working to prevent the processing of those transactions.
Though Dick acknowledged the healthy level of competition in the cannabis space, he is confident the appeal of a bank-owned, bank-operated app will be considerable. "The app, the network, and the merchant virtual terminal are on a closed-loop system with strong encryption and cybersecurity," Dick said. "The ledger is reconciled daily. Deposits are FDIC-insured. We are focused on simplifying the consumer experience with an easy-to-use reloadable app. Our virtual terminal is also secure and very easy to use, with a robust merchant back-end."
MainStreet's introduction of Avenu has coincided roughly with an uptick in scrutiny of institutions seeking embedded finance partnerships with fintechs. Dozens of institutions have been caught up in enforcement actions. A number, including Blue Ridge Bank in Charlottesville, Virginia, and
Dick, who served as an executive with the Office of the Comptroller of the Currency before helping found MainStreet in 2003, did not criticize regulators. Still, he acknowledged the close attention regulators have paid to BaaS arrangements in recent years impacted the pace of Avenu's rollout.
"We had originally talked about getting the solution out in early 2023, then mid, then late, then in 2024," Dick said. "We needed to make sure it would meet regulatory expectations."
