The cannabis industry has grown exponentially in the last two decades. As things currently stand, 33 states allow at least limited use of cannabis for certain medical conditions. Eleven states and the District of Columbia have fully legalized cannabis for recreational use. So it is no surprise that business is booming across the country.
Unfortunately, cannabis-based businesses must deal strictly in cash. Because cannabis is still a controlled substance at the federal level, and banks are regulated by Washington, it is nearly impossible for business owners to access traditional banking services. This means they also do not have access to traditional funding.
What if a cannabis business owner wants to expand but does not have enough working capital? Good luck getting a loan from a bank. Heavily regulated private lenders may not be much help either. That leaves business owners but one choice: hard money.
More About Hard Money
Actium Partners, a Salt Lake City, Utah firm that specializes in hard money and bridge loans, explains that hard money is private money. Hard money lenders are essentially investors willing to directly lend their funds to clients who either do not want to do business with banks or don’t have the time to go through a lengthy bank approval process.
Hard money tends to be a lot more flexible than bank money. Furthermore, hard money lenders are not subject to the same federal restrictions that banks must adhere to. They are generally free to loan to whomever they want as long as they do not engage in predatory lending.
The Problem with Banks
Retail and commercial banks are regulated at the federal level. This creates a problem for the cannabis industry in that federal law prevents banks from doing business with individuals or companies involved in federal crimes. Despite cannabis being at least partially legal in 44 states, dealing in cannabis is illegal in Washington’s eyes.
In fairness, federal law enforcement officials have taken a hands-off approach to enforcement. They recognize that states have largely moved to legalize cannabis to some degree. Yet the lack of enforcement is never guaranteed.
This puts banks in a position of having to risk federal action in the event law enforcement decides to go after an individual or business involved in the cannabis trade. Banks do not want that kind of heat. As such, they don’t offer banking services to cannabis businesses.
A Cash-Only Enterprise
Cannabis businesses are cash-and-carry enterprises only because they cannot access traditional bank services. They cannot open business checking accounts. They cannot apply for debit or credit cards. They certainly can’t get business loans to fund expansion, acquisitions, etc.
There have been stories of cannabis business owners with huge amounts of cash lying around. Some have resorted to storing cash in numerous locations rather than keeping it all on site. Not only is this inconvenient, it presents a safety issue. Criminals know that retail cannabis businesses deal only in cash, making them a prime target.
Hard money cannot solve the banking problem for businesses in the cannabis trade. Remember that hard money lenders are not banks. They cannot accept deposits or offer checking accounts. What they can do is provide hard money and bridge loans when business owners need new sources of funding.
Is the hard money solution ideal? No. At some point, Washington and the states have to come to some sort of agreement about cannabis-based commerce. The industry cannot continue operating in such a haphazard way without being negatively impacted. Hard money provides an attractive financing option, but it does not solve the overall banking problem.