New Bill Would Allow Loans for Cannabis Businesses

The Ensuring Safe Capital Access for All Small Business Act

A new bill, The Ensuring Safe Capital Access for All Small Business Act, introduced by Congresswoman Nydia Margarita Velázquez (NY), would give access to credit to direct and indirect state-legal cannabis businesses. If the legislation passes, the SBA would give preference to businesses from disadvantaged communities who might otherwise not have access to the necessary funding. Due to the federal limitations currently placed on financial services for cannabis businesses, it is nearly impossible for cannabis start ups take out loans from banks or other federal funding sources. The bill would provide eligible business owners the capital needed to effectively start their operations. If it becomes law, this would be a major step in creating a more inclusive cannabis industry by providing much needed access to start up capital for would-be business owners. SBA Loans would greatly increase access to capital for Social Equity program participants nationwide including in Massachusetts and here in Los Angeles, especially considering that an analysis by the U.S. House Committee on Small Business estimates the average start-up costs for cannabis businesses are $775,000, with annual operating costs of $2 million/year.

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SBA Currently Funds many Women, POC, and Veteran Owned Businesses

By design, the SBA emphasizes its support of business owners who face higher rates of social obstruction based on gender or ethnicity. As well as military veterans and rural business owners, many women and people of color face difficulties accessing credit from conventional banking sources. The SBA currently has numerous programs in existence like the 7(a) Loan Guaranty Program, the 504/Certified Development Company Program, and the Microloan  program, which are specifically focused on helping small business owners with limited access to affordable capital. Shanita Penny, president of the Minority Cannabis Business Association, noted at the congressional hearing that without these programs, small business owners would be more vulnerable to the predatory lending practices of alternative channels.

Cannabis Start-up Costs - $775K+

Starting a cannabis business is capital intensive, largely due to the commercial real estate and limited zoning where cannabis business activities are permitted. Social Equity Programs around the country are aiming to reinvest in communities that were disproportionately impacted by the failed War on Drugs, and create opportunities for an inclusive cannabis industry. The missing piece for many budding cannabis entrepreneurs from underserved communities is financing. Because cannabis remains federally illegal, traditional loans are not available and most financing for cannabis businesses comes from private investors.

Bringing the Issue Forward

The importance of federal legislation allowing cannabis businesses access to fair banking services has been increasingly addressed in Congress over the past few months, but due to the high level of capital required by cannabis businesses to even start operations, providing small businesses with access to affordable capital is also urgent. Ensuring that historically marginalized groups are able to compete in a rapidly expanding new market requires the cooperation of the Federal government and its agencies.

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Lauren Estevez is an attorney who advises international, multi-state and California cannabis brands, operators, and investors. She is nationally recognized as a subject matter expert in Cannabis Law and her work has been featured on CNBC, Bloomberg Law, and SXSW. The National Law Journal awarded Lauren the recognition of Cannabis Law Trailblazer in 2019. Lauren is the founder of LME Law.