02/16/2022
What to Know about Cannabis Loans
New laws mean new business opportunities! With the legalization of both recreational and
medicinal cannabis for adult use in New York, dispensaries and other relevant businesses are
opening up at a rapid rate. While the Ma*****na Regulation and Taxation Act (MRTA) was
established on March 31, 2021, there are still several uncertainties surrounding this new
industry which will be worked out as the new legislation settles in. Laws surrounding the new
cannabis industry are expected to evolve as New York experiments to find what works best for
the community and business owners.
Securing financing for starting any type of cannabis related business comes with a unique set of
challenges. Since cannabis is not yet federally legal, many commercial lenders are reluctant to
underwrite cannabis loans. Even in legal states such as New York, there are strict regulations
surrounding these types of loans that can be confusing and also intentionally limiting. Having
experienced brokers on your team will give you peace of mind as you begin your new cannabis
business.
If you would like to discuss cannabis loan options with a qualified broker, the team at POM
(Peace of Mind) Capital & Funding Group know the laws and regulations to help you smoothly
secure funding for your business endeavor. We can help you navigate the gray areas of the law,
ensuring that your new cannabis loan follows the exact legal path designed for this budding
new industry.
How to Apply
Often, larger banks may be hesitant to underwrite a loan for someone in the cannabis industry
due to the plant still being federally illegal, which can create an atmosphere of risk. When
applying for a cannabis loan, private lenders are your best option to secure financing. Even so,
private lenders in legal states have strict requirements they must adhere to for approval and
available funding varies depending on where you plan to open your business.
Before you apply for a loan, review the state guidelines to ensure your chosen state is the ideal
location to start a cannabis business. Some states, such as here in New York, are fully legalized
while others only allow medicinal use. You will need to undergo a background check along with
the proper licenses and certifications.
From there, getting approved for a cannabis loan follows the basic procedures for other types
of business loans. You will need to come prepared with a thorough business plan detailing the
scope of your business. This plan needs to include your day-to-day business operations along
with a market analysis. You also need to consider the legal environment of the area where you
are opening your business.
Finally, analyze the market to create a financial projection outlining your expected profits and
expenses. Preferably, your projections should expand five years out. Most new businesses do
not start seeing a profit for the initial couple years, sometimes as many as three. The cannabis
industry is unique in that businesses commonly do not start seeing profits for five years. This is
the trend seen in other states that have legalized cannabis and New York is expected to follow
suit.
You will need to include the cost of buying product and other materials as well as taxes you will
need to pay. Taxes associated with the cannabis industry are typically high and investors will
want a guarantee you will be able to afford these along with the slim profit margins that initially
accompany a cannabis business.
In addition to this information, lenders will also look at your personal finances. This includes
your credit history, other investments, and all debts. A high credit score is imperative for
convincing potential lenders to invest in your business. As with any loan, convincing your
investors you have a solid business plan with a lucrative outlook and your proposal comes with
low risk to them is key to getting approved.
Obstacles Securing Funding
New York state has some of the strictest regulations surrounding the production, distribution,
and use of recreational and medicinal cannabis. Just because cannabis is legal in the state of
New York does not mean that you have open options when it comes to selecting a location to
open your cannabis business. You cannot open your business in close proximity to a school or
place of worship.
Getting approved for a loan can be difficult as most traditional lenders are unable or hesitant to
provide financing when cannabis is currently not federally legal. Typical commercial lenders will
not underwrite cannabis loans as the FDIC will not insure these agreements. Approval for
business credit cards also can be near impossible to get as they are backed by major banks who
are not willing to take on the additional legal risks.
Another obstacle to keep in mind is that New York limits the number of cannabis licenses they
are willing to issue. There is a cap limiting the number of applicants who can apply in order to
mitigate risk. For those who can secure a cannabis license, this can actually be beneficial as it
guarantees the initial market will not become oversaturated. If you are serious about entering
into the cannabis industry, this is the right time to do so if you can handle the slim profit
margins expected for the initial few years.
Contact POM Capital & Funding Group
At the POM Capital & Funding Group, we can schedule a consultation to learn more about your
options and what to expect when acquiring a cannabis loan. Coming prepared with the right
financial documents and project expectations will help your broker become familiar with your
circumstances to get you the best loan possible.
If you would like to discuss your cannabis loan options with an experienced broker, call POM
Capital & Funding Group at (631) 354-9290 or fill out our online contact form to have a loan
advisor reach out to you.
POM (Peace of Mind) Capital & Funding Services is a leading provider of alternative funding
solutions for businesses of all types and sizes. POM Capital & Funding Services offers cannabis
loans and other financing products in the Centerport, New York area.
