Serving pot clients can be loan breaker
WASHINGTON — Marijuana legalization at the state level has created a moneymaking opportunity not only for licensed growers and sellers but also for a wide range of ancillary businesses, from publicly traded garden product companies to local print shops.
Now a new Small Business Administration
(SBA) policy could force some entrepreneurs to choose between serving cannabis clients and getting a federally subsidized loan.
In an April policy notice, the federal agency said it won’t approve loans to businesses that derive any portion of their revenue from sales to marijuana clients, because the drug is illegal under federal law. The policy could hurt local nature centers, architects, designers, attorneys and other businesses that occasionally work with licensed weed industry, legal experts say.
Supporters of cannabis legalization are speaking out against the lending policy. “This rule would be impossible to implement and wreak havoc across multiple sectors of the economy,” said Oregon Rep. Earl Blumenauer, a Democrat, in a recent letter to the SBA. “For example, would just one order from a cannabis business for soil preclude a locally-owned garden center from receiving federal government loan support in the future?”
Nine states and Washington, D.C. allow marijuana to be sold for recreational and medical use and 21 others allow it to be sold for medical use. Nationwide, sales of the plant and its products hit an estimated $8.6 billion in 2017 and supported over 121,000 jobs, according to a report from the Arcview Group and BDS Analytics, cannabis industry research firms. That’s almost double the sales Arcview estimated for 2014.
Even more jobs have been created at non-marijuana businesses. In states where marijuana is legal, it’s easy to find marketing agencies that create campaigns for cannabis brands, greenhouse manufacturers that sell products just for marijuana growers and commercial printers that offer new services for marijuana clients.
The SBA has backed over 300,000 loans nationwide since fiscal 2013, and some loan recipients are currently serving cannabis clients, according to a cursory Stateline review of federal loan data and company websites. The agency’s new policy could make them ineligible for future loan assistance.
Take the Green Sunshine Company, a Portland, Ore.-based business that makes lighting systems for growing plants and has used social media to promote its success with cannabis growers. A company representative said the lighting technology is made for anyone who wants to grow indoor plants, and that he may not know what customers intend to grow.
The Green Sunshine representative didn’t want to disclose his name – a reticence shared by several other SBA loan recipients whose websites boast of pot-related clients, but who declined to comment on the new policy.
The SBA isn’t answering questions, either. “Please be aware that the Small Business Administration is not making any comments at this time,” Cecelia Taylor, an agency spokeswoman, said in an emailed statement.
It may be too soon to assess the impact of the policy, said Barbara Vohryzek, president and CEO of the National Association of Development Companies, a trade association for lenders that provide SBA-backed loans.
She said she’s not sure why the agency made the new policy but it may be because the licensed marijuana industry has grown too big to ignore. “It’s becoming an issue that they’re having to address,” she said.
The SBA’s move to restrict loans to companies that touch marijuana money is the latest example of a federal agency obeying federal law and hurting pot entrepreneurs in the process, said Michael Correia, director of government relations for the National Cannabis Industry Association.
“It doesn’t shock me or surprise me in any way,” he said. Government agencies are risk averse, and would rather say no to the cannabis industry than get into trouble with the Justice Department, he said. Federal law classifies marijuana as a Schedule I controlled substance, on par with heroin and ecstasy. U.S. Attorney General Jeff Sessions is also a prominent opponent of legalizing the plant.
The SBA doesn’t make loans directly. Instead, it guarantees loans, allowing banks to lend money to businesses on better terms. Businesses are eligible for the loans based on the size of their revenues and number of employees, among other factors. Under longstanding federal law, businesses can’t get governmentbacked loans if they engage in illegal activity.
The agency issued updated guidance last October that said borrowers are ineligible for federally-subsidized loans if they lease space to businesses that violate federal law, including marijuana dispensaries. In April, the agency issued clarification on the marijuana issue – among others – in response to feedback from lenders.
Ineligible businesses include both those that directly touch cannabis plants, such as growers, processors, distributors and retailers, and businesses that derive any gross revenue from sales to growers, sellers and the like, the notice said.