The legalization of marijuana at the state level creates financial complications for all involved from property owners to retailers to grow operations as banks must still comply with the Federal laws classifying marijuana as illegal. Despite memos issued by the Federal Treasury and Justice Departments, there continues to be controversy and disagreements within the banking industry over whether or not banks can accept money or make loans to participants in legal marijuana businesses. Meanwhile, many of the larger national banks are refusing to knowingly have anything to do with marijuana businesses until Federal law changes. (Check out articles from the Washington Post and the Denver Post for more information about the banking situation.) Because of this confusion, there are three things that anyone wanting to finance a marijuana-tenanted property should know:

1. Realize that traditional financing options are not available. No matter how strong a borrower’s credit score is, banks are currently rejecting any loans for properties that are linked, even in the most minor way (for example, one tenant occupying a small part of a large retail center), with the marijuana industry. For this reason, hard money and private lenders have become the go-to financing sources for marijuana-tenanted properties.
2. Know how the property can be used. Zoning is not the only factor that determines whether a property can be leased or used by a marijuana tenant. If you are planning to lease to marijuana tenants, you need to perform due diligence to ensure that all approvals are in place to allow them to occupy the space as this will greatly affect the property’s income-producing potential.
3. Recognize the property’s true value. While the current market is experiencing a boost in the value of marijuana-tenanted properties (sometimes 30% to 50% more than comparable properties with non-marijuana tenants), it is key that property owners and real estate investors understand that such a situation of overpayment is not sustainable in the long term. When seeking financing to purchase such properties, borrowers should be aware that lenders will want to know what a non-marijuana tenant would pay in addition to any above-market leases or prospective leases for marijuana tenants before they determine the value of the property and the loan-to-value (LTV) ratio that they will offer.

Property owners who keep these financing guidelines in mind can use hard money and private loans to capitalize on the opportunities presented by the current above-market values of industrial properties in the Denver area while they last.

Please note: While Montegra offers financing for marijuana-tenanted properties, we are unable to finance loans to borrowers who are directly involved in the marijuana industry.