Funding, banking, merchant processing, and loans for cannabis businesses come in all shades of gray. Currently, cannabis businesses are extremely limited in their access to the services and resources that traditional companies enjoy. Because cannabis has not been federally legalized, many marijuana-related businesses and dispensaries have resolved to shady work-a-round solutions that are extremely risky, unreliable, expensive, and limited in functionality. The good news is that recent developments have shown that change is in the works, and cannabis businesses may soon have access to traditional banking, merchant services, SBA services, loans, and more.
If a new bill proposed by Nevada Senator Jacky Rosen passes, state-legal cannabis businesses will finally have access to the same Small Business Administration (SBA) loans and programs that other industries take for granted. As it stands now, any business that deals with cannabis in any way is ineligible for SBA services. The Fair Access for Cannabis Small Business Act would close this unfair loophole.
What is the Fair Access for Cannabis Small Businesses Act?
On Thursday, November 17th, Senator Jacky Rosen of Nevada introduced the Fair Access for Cannabis Small Businesses Act to help support regulated cannabis businesses in states where marijuana has been legalized. The Fair Access for Cannabis Small Businesses Act would, if passed, ease the process for licensed cannabis businesses to attain the same benefits as other legal businesses. These include access to loans from the SBA’s popular 7(a) program, disaster loans, and microloans. Moreover, it also provides regulated marijuana industry businesses access to groups such as the SCORE business mentoring program, Veterans Business Outreach Centers, and Women’s Business Centers that offer support and resources. This is a major development in the ongoing fight for cannabis legalization and normalization across the United States.
What Benefits Will Cannabis Businesses Receive if the Act is Approved?
Access to the Small Business Administration (SBA) 7(a) Loans1 – An SBA 7(a) loan is a type of loan that the Small Business Administration offers. This loan is designed to help businesses with the financing they need to start or grow their business. Companies approved for the 7(a) loan can use them for a variety of purposes, including:
- Purchasing inventory or supplies
- Paying for rent or mortgage payments
- Purchasing equipment or machinery
- Covering marketing or advertising costs
- Funding other business expenses
Access to SBA Disaster Loans2 – The SBA provides low-interest, long-term loans for physical and economic damage caused by a declared disaster. They include home and personal property, business and economic injury loans. SBA disaster loans can be used by qualifying businesses to repair or replace items that are damaged or destroyed in a declared disaster, including:
- Real estate
- Personal property
- Machinery and equipment
- Inventory and business assets.
For example, a business affected by a hurricane could apply for an SBA disaster loan to help them rebuild its damaged property. Another example of a disaster loan is an Economic Injury Disaster Loan (EIDL) used by many businesses to help them through the economic challenges brought on by the COVID-19 pandemic. Unfortunately, marijuana-related businesses did not enjoy these benefits, but if this new act passes, it will treat cannabis businesses the same as other traditional businesses.
Access to SBA Microloans3 – The microloan program offers loans that go up to $50,000 to help small businesses expand or get started, but not to pay existing debts or purchase real estate. Accessed through a designated intermediary lender, the average microloan is approximately $13,000. Microloans can be used for:
- Working capital
- Inventory
- Supplies
- Furniture
- Fixtures
- Machinery
- Equipment
Access to the Small Business Investment Company (SBIC) Program4 – The SBIC program licenses investment funds managed by private and public entities. These groups then raise capital from private investors, which is combined with capital obtained from the issuing of a debenture guaranteed by the SBA. The SBIC invests this combined funding into qualifying small businesses.
SBICs typically finance small businesses that are later-stage, profitable, and generating cash flow sufficient to make interest payments (and sometimes even principal payments). The financing provided by SBICs is usually in the form of subordinated debt with equity enhancements. Generally, the amount lent ranges from $2.5 million to $10 million; however, each SBIC has different preferences regarding desired industry sector, geographic location, and company maturity level. Some specific parameters and regulations set by the SBIC program and overseen by the SBA need to be met.
Access to SBA Resource Partners5 – The SBA bolsters economies by teaming up with organizations that offer training, opportunities, and funding to local communities. For example, businesses can access free business mentoring from an expert through SCORE, the nation’s largest network of small business mentors. The complete list of SBA Resource Partners includes:
SCORE Business Mentors6 – The nation’s largest organization of volunteer, expert business mentors. It is a nonprofit dedicated to helping small businesses plan, launch, manage and grow through mentoring and educational workshops.
Small Business Development Centers (SBDC)7 – The Small Business Development Centers help small businesses by giving counseling and training, which then helps the SBA develop tools for business start-ups and expansions. SBDCs help small businesses with a plethora of problems they might face, such as access to capital, new technology, and improved business strategies. The services aim to assist in areas essential for small businesses looking to grow or improve management, including productivity and innovation.
Veterans Business Outreach Center Program (VBOC)8 – The VBOC Program is designed to give transitioning service members, veterans, National Guard & Reserve members, and military spouses the entrepreneurial development services they need to start or grow a small business. These services include business training, counseling, and referrals to resource partners. The SBA has 22 organizations participating in this cooperative agreement and serving as VBOCs.
Women’s Business Centers (WBCs)9 – WBCs are a part of a national network of entrepreneurship centers throughout the United States and its territories. These WBCS provide free to low-cost counseling and training to women who want to start, grow, or expand their small businesses. The aim is to “level the playing field” for female entrepreneurs who still face unique obstacles in today’s business realm.
Other Noteworthy News for Marijuana-Related Businesses
Federal legalization of marijuana remains something that’s not likely to happen very soon, but there have been promising advancements that provide hope. For example, in October, President Biden issued an executive order asking for a review of the process of available research on medical marijuana by the Department of Health and Human Services in order to offer a recommendation to the Department of Justice to reclassify or declassify marijuana from the Controlled Substances Act. Part of the executive order also pardoned thousands of people convicted of marijuana possession crimes.
The Medical Marijuana and Cannabidiol Research Expansion Act
On November 29th, the Medical Marijuana and Cannabidiol Research Expansion Act was presented to President Biden. The bill is expected to be signed into order in the next few days. The act tells the Department of Health and Human Services (HHS) to discover any policies that stop cannabis research and make proposals to eliminate those limitations. Also, it allows research institutions to grow their own cannabis or import cannabis for medical study uses, but it forbids scientists from purchasing cannabis from state-run dispensaries. With significant bipartisan support, the act passed the House of Representatives with 325 votes in favor and only 95 votes against. On November 16th, the Senate passed the bill paving the way to make the new bill the first stand-alone piece of legislation concerning cannabis to pass in both houses of Congress, signifying a change in opinion about national policy on the substance.
The SAFE Banking Act
In April, the House of Representatives approved the act with strong bipartisan support sending the act to the Senate with a vote of 321-101. While many dispensaries have taken steps allowing them to accept debit cards as payments in exchange for cannabis products, the vast majority of debit payment solutions are risky, illegal, and set up under false pretenses. The SAFE Banking Act seeks to change the current legal status that prevents marijuana-related businesses from accessing federally regulated banks and traditional merchant processing solutions.
While dispensaries await the law to proceed and pass, the good news is that some fully compliant and legal debit card solutions are currently available to marijuana dispensaries. For example, Unity Payments, a subsidiary of The Nuvo Company, has partnered with a federal bank to offer a worry-free standardized debit card payment solution that features no upfront fees, 24-hour funding, and absolutely no risk. Unlike risky cashless ATMs or traditional on-site ATMs, Unity Payments empowers marijuana dispensaries to accept debit card payments exactly the same way you’d pay if you were purchasing groceries at the supermarket.
In Conclusion
Though federal legalization of marijuana remains something that’s not likely to happen very soon, there have been promising strides in the right direction. These recent developments serve as proof that the light at the end of the tunnel could be coming in the not-so-distant future for marijuana dispensaries and cannabis-related businesses. As states continue to pass laws legalizing marijuana, our eyes will remain focused on the steps underway and in the works at the federal level to ease the struggles that state-legal cannabis businesses face and ultimately legalize marijuana on a federal level.
Sources:
1 SBA Loan 7(a)
2 SBA Disaster Loan Assistance
3 SBA Microloans
4 SBIC Program
5 SBA Resource Partners
6 SCORE
7 Small Business Development Centers (SBDC)
8 Veterans Business Outreach
9 Women’s Business Centers
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