Regulations on Cannabis Small Business Financing: Everything You Need to Know

Trump’s tax adjustments have opened up a world of new opportunity for small business owners, but aspiring cannabis entrepreneurs still have plenty of other hurdles to jump.

To start, there’s the growing disconnect between the federal and state governments regarding cannabis’ legal status. Resulting from this disconnect, many cannabis businesses that would otherwise be thriving have difficulty obtaining the resources and capital that are readily available in other industries.

With consumer spending projections reaching as high as 23 billion in 2023, cannabis entrepreneurs are desperately searching for cannabis business loans– and alternative lenders may very well be the answer they’re looking for.

Recent Developments in Legalizing Cannabis Call for a Major Regulatory Change

Despite cannabis remaining illegal under federal statutes, 2019 has been a happening year in this burgeoning industry.

Marijuana is legal for medical patients in 33 states. It’s legal for recreational use by people over 21 in 10 states. Other states and cities, in which marijuana is still illegal, have decriminalized the Schedule 1 substance, softening the severity of the punishment for public consumption.

Many expected New York to be next on the docket for statewide recreational legalization. However, lawmakers failed to finalize the legislation before the end of the session, with major disagreements about regulations holding it back. Others are unwilling to approve legislation unless it empowers small business owners to receive cannabusiness funding and have a fighting chance, and especially minority business owners in disadvantaged communities. Lawmakers and entrepreneurs are optimistic about legalizing in 2020, but there’s still time to make the push in New Hampshire, New Jersey, and New Mexico in 2019.

The cannabis industry, however, isn’t limited to marijuana. Cannabidiol, often referred to as both CBD and hemp, has rapidly gained popularity as well, especially after the federal government legalized it. While CBD isn’t quite illegal, CBD business loans and hemp farm loans can be hard to come by, too.

From a financial standpoint, there are plenty of figures that show this momentum is worthwhile. Marijuana Business Daily recently reported that cannabis employment in the U.S. could grow by 34% in 2019. If this change takes shape, cannabis industry employees in the U.S. would outnumber flight attendants.

Federal Regulations Prevent Cannabis Small Businesses From Accessing Loans and Other Resources

The potential for profit in all areas of the cannabis industry is massive. But despite state-legal status, cannabis companies have consistent difficulty in capitalizing on this potential due to trouble accessing funding. Federal law enforcement and inconsistencies between state and federal laws are mainly to blame, which lawmakers discussed in a recent Congressional hearing.

The turbulence normally begins with banks. Federal banks with a reputation to uphold are reluctant to tarnish their reputations and risk legal action by accepting cannabis companies as clients. Many well-established companies, who have been riding the wave of cannabis’ popularity since legalization, found banking partners early on, before the rush.

Even in Florida, where medical marijuana is legal, local community banks willing to provide banking services and funding to cannabis companies don’t have the resources to provide business owners with affordable cannabusiness funding in the form of SBA loans.

According to Dana Chaves, who testified as the senior vice president and director of specialty banking at First Federal Bank in Lake City, Florida, these issues are regular. Her bank owns over $2 billion in assets, with 24 branches nationwide, but is unable to issue SBA loans. These loans are insured by the government, which typically allows lenders to be more forthcoming with better rates and longer terms.

The Case for Easing Regulations on Cannabis Business Loans

During the Congressional hearing, Chaves was joined by Shanita Penny, president of the board of directors of the Minority Cannabis Business Association. During her testimony, she spoke about how access to these crucial loan products, which makes financing possible even in economically disadvantaged communities, would empower small businesses to hold a candle to “big cannabis” monopolies.

Without these loan products, entrepreneurs are “vulnerable to predatory lending and business practices,” Penny said.

“These business owners need SBA support and resources to start and grow their businesses, not business partners and investors that take advantage of equity programs to enter the market early or tokenize their ‘partners’ for market share.“

SBA loans are not, however, the only answer to funding without venture capitalists gaining a dominant market share– there are other cannabis business loan sources out there.

Alternative Finance: Empowering Cannabis Small Businesses to Get Working Capital Loans

While the future of SBA loans in the cannabis industry remains to be seen, the alternative financing market is a promising prospect for cannabis small businesses in need of immediate funding–without the typical equity share strings attached.

At National, you can access a variety of working capital loan options through a marketplace of over 75 lenders, with a business financing advisor team ready and willing to offer guidance on the perfect option. All of these loan products are designed to make financing possible for businesses still hoping to gain sturdy footing in this fast-paced industry.

Best Ways to Get Funding For Cannabis Small Businesses

Private lenders can bypass the strict federal regulations that prevent banks and the SBA from being able to issue cannabis business loans, and even offer loans with flexible terms and amounts topping out in the millions.

A business line of credit will provide the ongoing access that cannabis businesses in their first or second year of operations. As things move along in your business, this line of credit can prove invaluable in financing continued growth.

If vendors are slow to pay, then a merchant cash advance will put you in the black right away, and help you to keep things on track without collateral or a personal guarantee.

Whether you’re a dispensary in need of a new POS or security system, any of the many tools or machines needed to cultivate cannabis, or another business-essential piece of equipment, equipment financing can make a real difference.

Excited to get started? Speak with a financing advisor right away by filling out our 60-second application or giving us a call at (888) 488-GROW!