As the New York area's crowded cannabis marketplace experiences tighter margins and tougher competition, a New Jersey community bank saw a large weed-related loan go up in smoke.
BCB Bancorp in Bayonne, New Jersey, swung to a first-quarter loss after establishing a $13.7 million specific reserve tied to the troubled cannabis loan.
The $3.5 billion-asset parent of BCB Community Bank recorded an $8.3 million loss for the three months ended March 31. For the same period in 2024, BCB reported net income of $5.9 million.
The troubled cannabis loan totals $34.2 million. Though the borrower remains current, "the significant deterioration in their financial condition warranted a downgrade to non-accrual status and the establishment of the reserve," BCB President and CEO Michael Shriner said Tuesday in a press release.
Shriner did not respond to American Banker's request for comment by deadline.
Overall cannabis sales in New York and New Jersey, which are BCB's primary markets, are rising, but so is the number of sellers, according to industry experts.
"New retailers are creating stiffer competition for existing operators, leading to higher discounts that cut into margins," the cannabis data analytics platform Headset said Tuesday in a report.
Not all of the competitors are legal, said Alan Sumler, who publishes a monthly report on the cannabis industry.
"There is competition from illegal out-of-state cannabis products in New Jersey and New York which is affecting sales," Sumler told American Banker in an email. "It causes prices to fall and product to be left over."
BCB's involvement in cannabis banking dates back to 2014, when the bank began offering deposit services to state-licensed medical-use businesses. In 2019, then-President and CEO Thomas Coughlin joined the board of a statewide cannabis industry trade group, the New Jersey CannaBusiness Association.
During the first quarter of 2025, BCB's credit issues weren't limited to cannabis. The company added another $3.1 million to its reserves to cover its discontinued Business Express program. That program had offered loans up to $250,000 to small-business borrowers. Originations ceased in 2023, and program-related charge-offs hit $8.1 million in 2024.
BCB reported first-quarter net charge-offs of $4.4 million, up from $1.1 million for the same period in 2024. Its provision for credit losses totaled $20.8 million, compared with $4.2 million for the first quarter of 2024.
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"These efforts are part of a broader initiative to strengthen our credit-quality oversight," Shriner said.
As BCB's credit issues get resolved, its profits should increase, according to Chris Marinac, an analyst at Janney Montgomery Scott.
"There is inherent value in BCB's deposit franchise," Marinac wrote Wednesday in a research note. "Better profits unlock this value over time."
BCB reported deposits of $2.7 billion on March 31, down 2% from a year earlier. Loans fell 3% to $2.9 billion. The bank recorded quarterly net interest income of $22 million, down 5% from the same period in 2024.
BCB's net interest margin widened to 2.59% on March 31, from 2.50% a year earlier.
Still, the quarterly loss appears to have soured investors' moods. Shares in BCB were trading at $8.66 on Wednesday afternoon, down about 8% from Monday's closing price.
