2024-04-08_CSC Blog Post—Biz Loans_Legal Limitations for Cannabis Companies_1920x1080

Business Loans & Legal Limitations for Cannabis Companies

Cannabis has become a multi-billion dollar industry in sectors including healthcare, pharmaceuticals, consumer goods and even agriculture. With the legal cannabis industry continuing to develop and support for the legalization of recreational and medical marijuana growing, more people are seeking to start cannabis companies and more investors are taking note of the burgeoning industry.


Have Banks and Credit Unions Warmed up to Cannabis Companies?

Many banks and credit unions have yet to warm up to the cannabis industry, since it is still illegal under federal law. Those that will issue loans to cannabis companies charge substantial fees to compensate for the burdens of working within the industry. Where does that leave owners who are seeking sources of financing to start or expand their business? Fortunately for them, they do have options in the alternative financing world.


Small Business Loan Options for Cannabis Companies

Alternative lenders offer a variety of small business loans that may be appropriate for cannabis companies, including business lines of credit, business term loans, working capital loans, merchant cash advances and revenue-based financing. Requirements for these loans may include having a minimum level of gross sales, maintaining a minimum credit score and having operated for a minimum length of time.


Other financing options include angel investors or venture capital and private equity funds but those may require giving a substantial ownership stake in the business. It should be noted that cannabis companies focused only on supplying marijuana for medical uses will find a greater range of financing options available to them than those that also cater to recreational users.


Obstacles Cannabis Companies Need to Overcome to Run a Successful Business

The fact that selling cannabis is still illegal under federal law does more than limit the business loans cannabis companies pursue; it also makes it difficult or even impossible to secure banking services like checking and credit accounts. Operating a business without those services means cash must be used for everything from transactions with customers and vendors to paying taxes to state authorities and paying employees. That can require an investment in a high-tech security system like 24/7 video surveillance and reinforced doors and windows and perhaps even full-time onsite guards.


Looking Toward the Future

The passage of the SAFER Banking Act will make it easier for cannabis companies to work with financial institutions by creating federal safe harbors for them to accept deposits from state-sanctioned cannabis companies. However, while a version of the bill has been approved by the House seven times, it has faced roadblocks getting through the Senate. Stay tuned.


The Bottom Line

The cannabis industry has already seen success in California and other states and there is more to come. If you seek to start a cannabis company or expand your existing business, you do have options to secure a small business loan to move forward outside of the traditional banking industry. You just have to know where to look to be able to operate on “high” as a successful cannabis company.


Clear Skies Capital has helped many cannabis companies determine the small business loan that’s best for them and get the financing they need in a timely fashion. Contact us today at 800-230-9822 to discuss your company’s needs.