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A Close Look at What Makes Finding Capital Difficult For Cannabis Businesses

All business enterprises need funding to grow, and cannabis businesses are no exception. Since the past few years, the cannabis industry has been burgeoning, facilitated by its recent legalization (either for medicinal or recreational use, or both) in several states. This has provided amazing opportunities for cannabis businesses to expand and grow their operations. Yet, many have had to pass up on these opportunities because they struggle to find loans, cash advances, and other cannabis business solutions in the USA.

For businesses of any type, securing funding generally isn’t easy. Borrowing a loan requires businesses to perform a series of processes, including demonstrating their financial history record that determines their trustworthiness with money, and it can be really challenging for many to meet the requirements. But Cannabis businesses have it even worse.

Below, we will closely examine the major reasons that make it difficult for cannabis proprietors to access funding from traditional financial institutions.

Legal Restrictions

The primary reason that limits cannabis businesses' access to traditional financing options is its peculiar legal status. Though many states have legalized cannabis either for recreational or medical use or both, it is yet to be legalized at a federal level. As a result, the SBA (Small Business Administration) refuses to issue loans to cannabis business proprietors, fearing the legal complexities a change in federal ruling would tangle them into. Banks and other traditional lending institutions limit their services and even refuse to open checking accounts for cannabis businesses for the same liability reasons.

Cash Business

As it is today, the cannabis business remains a mostly cash-based industry. With no checking account and having to deal with the innate difficulty of tracing cash, proprietors face major challenges in providing bank statements or credit scores.

Without these two very important records that are required by lenders and funders for analyzing the credibility and financial management skills of prospective borrowers, it becomes very difficult for cannabis businesses to qualify for conventional loans. And from the standpoint of lenders, they would have nothing to collect or benefit if a cannabis business defaults on a loan.

High Risk Borrowers

The federal illegality and the cash-based nature of the industry make cannabis businesses high-risk borrowers. To make matters worse, banks that are FDIC-insured cannot work with them because of the agency’s regulations on lending to high-risk enterprises. There’s also the factor of banks providing loans to cannabis businesses subjected to prosecution if the business breaches state law by selling products to a minor or ships them across state lines.

Conclusion

While all of these may make it seem like any chance for securing capital for the cannabis business is completely out, it isn’t so. Realizing the potential and opportunity for profit, several private lenders and companies, including equity real estate investment trusts, provide financing options to cannabis proprietors.

If you’re a cannabis business owner looking for capital, Rainbow Realty Group, LLC is one such lender that provides real estate lending space for cannabis businesses. We are a real estate financier who underwrites non-cannabis or “traditional” real estate values for retail, industrial, and agricultural properties. To learn more about how we can help your business, contact us today.

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