Even though recreational marijuana has been legalized in 11 states, financing continues to be a thorny issue for the marijuana industry. Taylor West, the deputy director of the National Cannabis Industry Association, was recently quoted in the December 2016 issue of Scotsman Guide, saying, “It continues to be an issue because banks are regulated at the federal level…. Some businesses have been able to get bank accounts through one means or another, but as an industrywide situation, it is still pretty much a problem.”

The problem is that the majority of banks won’t even let marijuana businesses open checking or savings accounts, much less consider loaning them money. This includes loans backed by the federal Small Business Administration as well as unsecured business loans such as corporate credit cards and lines of credit. As banks are regulated at the federal rather than the state level, this is unlikely to change in the foreseeable future.

An additional problem that has arisen in Colorado since the legalization of marijuana for recreational use is banks recalling loans made to landlords of marijuana-tenanted properties, even though they are not directly involved in the marijuana industry themselves. Why are the banks doing this? Because if the federal regulators decide to step in they could do more than just shut down the business, they could decide to seize the property as well. And since bankruptcy courts are also federally controlled, they won’t decide cases in which marijuana businesses are involved either. Just last year, a Denver bankruptcy appellate court ruled that bankruptcy protections cannot be extended to businesses engaged in federal crimes, regardless of the legality of their activities at the state level. All of this makes lending to marijuana businesses incredibly high risk.

However, the good news is that private lenders have stepped up and offered higher-interest hard money loans to these businesses and their landlords. Some private lenders are making loans directly to marijuana businesses, sometimes with a “convertible debt” option that allows the lender to translate the debt into an equity stake in the company at an unnamed future date. Others, like Montegra, offer loans to landlords of marijuana-tenanted properties who may need the funds to pay off a recalled bank loan or to invest in properties that marijuana businesses are unable to secure for themselves directly.

If you have questions about Montegra’s cannabis real estate loan program, contact us at 303-377-4181.