Will Access to Banking and Financial Products Open the Flood Gates For Cannabis & Hemp Businesses?

Will Access to Banking and Financial Products Open the Flood Gates For Cannabis & Hemp Businesses?
The laws concerning cannabis and hemp have been in flux in recent years, led in part by changing attitudes toward both crops. Some states, such as Colorado, have legalized pot for medical and recreational use, while others, such as Illinois, have made the substance legal for medical use only. Many states have worked to decriminalize marijuana, and only four states currently ban all forms of cannabis and cannabinoids: South Dakota, Idaho, Kansas and Nebraska. Even the anti-marijuana state of Tennessee allows CBD oil made from hemp. The news is even brighter for hemp fans. The recent farm bill legalized hemp on a federal level, making it a totally legitimate crop. These legal changes for both cannabis and hemp are affecting the way that financial institutions think about these crops. As a result, there should be a flood of new cannabis and hemp businesses opening in the coming months and years.

Financing for Cannabis and Hemp Production and Sales

Those in the cannabis industry have financing options, but they remain limited due to federal law. In fact, the big banks still will not allow these businesses to open checking accounts since they are not legal at the federal level, and these financial institutions are protected by the FDIC. As a result, marijuana producers and sellers have had to pursue more creative financing options and places to store their operating capital.
Financing has become less problematic as more and more states legalize marijuana for medical and recreational use. While a few entrepreneurs are wealthy enough to self-finance, most need to pursue other paths. Some take out personal loans or home equity loans, while others seek financing from private investors. These investors might be limited to friends and family, but some venture capitalists have entered the cannabis industry, including well-known names from private industry. Securing this funding may mean giving up partial control of the business or the need to pay higher interest rates since the lender is incurring higher risk. Marijuana growers cannot secure federal crop insurance, even though they are at great risk from severe weather events and destructive pests. Many investors are hesitant to proceed without this federal coverage.

Cannabis and Hemp Financing Future

Until recently, hemp growers had many of the same financing problems as cannabis producers, and growers and sellers had to pursue the same type of funding. Those in the hemp industry now have more options since the legal status of hemp has changed. Traditional financing options are now or will soon be offered to hemp producers, although provisions will have to be made for the regulations and testing that will apply to those in the industry. Federally insured banks will accept hemp business accounts and consider producers and sellers for loans as they do other farmers seeking financing. 2019 should see more and more financing options open up for hemp farmers, but these changes are definitely still in progress.
More private and business investors are willing to finance cannabis concerns, so financing should be easier to acquire in the coming years. Until cannabis is legal on the federal level, however, large banks and more traditional lenders will not be in the cannabis business. In fact, every state in the Union can legalize cannabis, but until the federal government does, financing choices will be limited.
A recent poll shows that 62% of Americans believe cannabis should be legalized. Once a position held mostly by “liberal” citizens, cannabis has found widespread acceptance. Most experts believe that cannabis will be legalized, hopefully in the next decade, and when that happens, the industry should see rapid growth and inclusion as a mainstream investment. The profit potential is huge, and investors can expect a healthy return on their investment. People will be rushing to put their money into businesses that are poised to be huge money-makers.

Final Thoughts

Hemp and cannabis financing currently are in flux. Since most states have legalized some form of cannabis, more private investors and some financing companies are working with producers and retailers. Large financial institutions still will not work with these businesses since cannabis is not legal on the federal level. Without federal protection, their investments are too risky. Under the Obama administration, the DOJ had a “look the other way” policy toward cannabis enforcement, but the current administration has been less accommodating, which has made prospective investors pause.
Large banks should be offering new financing packages to hemp farmers and retailers soon now that hemp has received the federal stamp of approval. Hemp will be regulated, but those in the business can expect more favorable financing options than before.
February 14, 2019 / by / in

Comments are closed here.