Service Solutions | 10.26.22 | Show Me the Money – The Current State of Cannabis Lending

NCIA’s Service Solutions series is our sponsored content webinar program which allows business owners the opportunity to learn more about premier products, services and industry solutions directly from our network of established suppliers, providers and thought leaders.

In this edition originally aired on Wednesday, October 26, 2022 we were joined by the experts from cannabis-focused financial institutions FundCanna, Safe Harbor Financial, and AVANA Companies to dive deep into the current state of cannabis lending with leading industry journalist John Schroyer of Green Market Report.

A decade after California and Colorado became the first adult use states, the regulated U.S. cannabis market encompasses over 70,000 cannabis-related businesses. Shockingly, most of those businesses still lack easy access to debt and other forms of growth and operating capital. From federal prohibitions and the impact of IRS regulation 280e, to state and local taxation issues, the costs of operating a regulated cannabis company continue to remain nearly unendurable.

Learn what may change in the coming six to 12 months so you’ll know how to access debt capital most cost-effectively in this ever evolving environment. No matter your place in the industry or the supply chain from cultivators, manufacturers, vendors, suppliers, distributors and retailers this conversation will provide the insights to meet your financial needs.

At the conclusion of the discussion our panel hosted a moderated Q&A session to provide NCIA members an opportunity to interact with leading minds from the financial services space, join today to contribute to future conversations!

Panelists:

Adam Stettner
Founder & CEO
FundCanna

Sundie Seefried
Founder and CEO
Safe Harbor Financial

Sanat Patel
Co-Founder and CEO
AVANA Companies

John Scroyer
Senior Reporter
Green Market Report

Session Chapters & Discussion Outline

00:00 – Session Intro

01:09 – Moderator Intro

01:45 – Panelists Intro

02:13 – Equity vs. Debt: With equity dried up, should cannabis companies be looking at debt financing to grow now?

07:28 – Equity vs. Debt: What do borrowers need to do before approaching a debt provider (vs. an equity provider)?

13:25 – Equity vs. Debt: What can cannabis companies or entrepreneurs do to improve their overall credit worthiness prior to seeking capital?

17:16 – How has the interest rate increases by the Federal Reserve impacted capital markets (and the industry at large) in 2022?

26:07 – Audience Q&A: “If there’s “no reason not to have banking” for your cannabis business how can I easily (and inexpensively) establish and maintain a compliant bank account?”

28:56 – Lending: What significant lending challenges are your clients currently facing within the industry?

33:56 – Lending: What advice can you provide business owners for evaluating lenders that you should (or shouldn’t) work with and tips for avoiding predatory lending practices?

39:05 – Cannabis Reform: What impact do you expect President Biden’s recent announcement will have on the industry?

49:32 – Audience Q&A: “Are your financial institutions planning to offer lending and banking services in New York, New Jersey and other new markets?”

51:42 – Audience Q&A: “With the mindset of “Investors are betting on the Jockey not the Horse.” What type of CEO or founding team would be a red flag or not a viable investment?”

55:19 – Audience Q&A: “How can I start to shift my retail company from being primarily a cash-only business?”

58:00 – Final Thoughts & Contact Information

1:01:24 – Session Outro & Upcoming Events

1:05:03 – NCIA Member Appreciation Credit Sequence

Sponsored By:

VIDEO: Member Spotlight – Berkeley Patients Group

Get to know the team at Berkeley Patients Group, a founding member of NCIA, based in the Bay Area of California. Established in 1999, Berkeley Patients Group is the nation’s longest-running dispensary. Etienne Fontan and Sabrina Fendrick talk about the importance of establishing banking services for our industry, as well as other struggles related to federal prohibition. Etienne Fontan also currently serves on NCIA’s Board of Directors.

The Cannabis Business Banking Crisis

By Rachelle Lynn Gordon, NCIA Editorial

The fledgling legal cannabis industry has faced numerous challenges since California voters made the state the first to approve the plant for medical use in 1996. Since then, an additional 29 states and the District of Columbia have legalized cannabis for either medical and/or adult-use purposes yet it still remains a Schedule I controlled substance in the eyes of the federal government. This has caused immense headaches for cannabis business owners in a multitude of ways – especially when it comes to balancing the books. The majority of traditional banking institutions refuse to work with clients that touch the cannabis plant, leaving many businesses to operate as cash-only while at the same time missing out on the traditional financial and lending opportunities given to other businesses.

“Being forced to hire an armored truck just to pay taxes or provide payroll isn’t only a hassle – it’s also extremely dangerous,” says Harry Resin, who longs for the day when he can open a business checking account for his cannabis company, URB Delivery. “People’s livelihoods – and frankly their lives – are constantly at risk when you’re dealing with large amounts of currency.”

Lack of security isn’t the only detriment to cannabis business owners unable to find banks who will work with them. Business loans, savings accounts, 401Ks, and credit lines are all out of reach for those wishing to develop their operations and plan for the future.

“I would love to be able to expand my operations but because I don’t have the option to take out a small business loan, I either have to get loans from friends and families or potentially give up equity to private investors,” Resin adds. “It makes things difficult.”

While many believe that it is illegal for banks to do business with those in the marijuana space, it turns out the opposite is true.

“We actually have regulations on how to bank the cannabis industry, but most banks don’t want to go through the expense and hassle of opening new departments,” explains Jim Marty, CEO of Bridge West CPA. “They’re already making tons of money, so they don’t feel the need to enter a new space. It’s going to take Congressional action on legalization before the big players enter in.”

While it’s not clear how exactly cannabis reform will play out, Marty cautions that while moving cannabis to Schedule II status could be positive for advocates of legalization, it may also negatively affect the entrepreneurial activity the emerging cannabis industry has shown.

“Right now, we have a lot of start-ups and small businesses that are getting funding from angel investors or private equity funds. If cannabis becomes Schedule II, there’s a chance that Big Pharma, Big Tobacco, and Big Alcohol will come in and there will be two or three major producers. So something that could fix a lot of the problems may do more harm than good.”

Marty notes that the introduction of bills such as The SAFE (Secure and Fair Enforcement) Banking Act (S. 1152, H.R. 2215), which would offer protections for state-legal financial institutions working with marijuana businesses, are steps in the right direction for the cannabis industry but that it is going to take hard work and perseverance by all in the community before real change is made.

Help us grow even more support for the SAFE Banking Act in Congress. Contact your members of Congress and urge them to support federal protections for financial institutions that work with the regulated cannabis industry.

Learn more in this report by NCIA’s Legal and Banking Committee:
Investigating the Role of Financial Institutions in the Legal Cannabis Industry
NCIA’s Legal and Banking Committee, comprised of NCIA members within that sector, produced this white paper following a meeting with California State Treasurer John Chiang and other cannabis industry leaders in mid 2017. The paper provides discussion and evaluation of challenges faced by businesses operating within the legal cannabis industry, while highlighting some of the benefits the industry brings to financial institutions and the communities they serve. (February 2018)