Public assistance elusive for marijuana startups, even as hemp comes into its own

cannabis small business loans, Public assistance elusive for marijuana startups, even as hemp comes into its own

(This story is part of the cover package in the September issue of MJBizMagazine.)

Hemp and marijuana are the same species of cannabis. But in the United States, the two plants remain far apart in terms of how much government help entrepreneurs can get when starting a business with them.

High-THC companies remain off-limits from receiving any kind of federal assistance from the U.S. Small Business Administration (SBA) or other national agencies devoted to promoting economic development.

In response, states with regulated marijuana markets are taking up small-business lending and assistance that, for other industries, would be shouldered by the federal government.

“There is no federal assistance available to THC-touching companies,” said Tristan Watkins, program manager for the Colorado Cannabis Business Office, a $4 million agency created in 2021 to address shortfalls in federal support for cannabis businesses.

Prohibition to blame

The COVID-19 pandemic changed a lot for businesses and governments worldwide, but it didn’t alter the fact that cannabis entrepreneurs in the United States can’t access legal protections enjoyed by other industries.

As businesses shuttered and millions of workers were laid off, high-THC cannabis entrepreneurs were explicitly excluded from federal relief in the form of grants and loans to keep folks employed.

In fact, the SBA, which doled out more than $521 billion to more than 4.8 million different small businesses during the first six months of 2020, went out of its way to remind companies that they couldn’t get help if they worked with marijuana.

Several members of Congress, led by U.S. Sen. Jacky Rosen of Nevada, tried this spring to pressure the SBA to open lending to high-THC cannabis businesses. So far, the agency hasn’t acted.

Low-THC hemp operators, on the other hand, are eligible to seek:

  • Low-interest SBA loans, known as 7(a) loans.
  • Free SBA business-coaching sessions and technical consulting.
  • Federal disaster assistance.
  • New and minority farmer assistance from the U.S. Department of Agriculture.
  • Grants to promote climate-smart manufacturing and cultivation.
  • Subsidized crop insurance.

None of those are easily accessible to companies working with high-THC cannabis.

Shane Pennington, a Denver-based attorney with the Vicente Sederberg law firm, said he’s seen clients who don’t directly touch the plant be approved for federal loans or loan forgiveness—only to watch federal lenders change course because the companies work with or near cannabis.

“It’s a mess,” he told MJBizMagazine. “As long as cannabis is illegal, it’s going to be a pain to access any federal resources.”

 Hemp’s lesson: slow and steady

Even when U.S. laws change on marijuana prohibition, business startups won’t see government loans and assistance appear overnight—just ask folks who work with hemp.

Four years after legalization, hemp cultivation remains a new and volatile industry that struggles to attract public assistance.

Take crop insurance, for example: Hemp growers gained access to federally subsidized insurance four years ago, when Congress legalized cultivation nationwide.

But crop insurance policies rely on years of cultivation data, and insurers remain slow to offer coverage on a crop that doesn’t have reams of background data.

“There has been slow and steady improvement in the way that federal agencies treat hemp,” said Jonathan Miller, lawyer for the U.S. Hemp Roundtable. “That said, it doesn’t happen right away.”

 Different story in Canada

Prohibition repeal in Canada means that small cannabis businesses there are much better positioned to access government help.

The nation’s economic-development agency—Innovation, Science and Economic Development Canada—includes agencies that deliver financial assistance and advice to small operators.

In June, another federal agency—Prairies Economic Development Canada (PrairiesCan)—announced it had given a Saskatchewan cannabis nursery $1.4 million (CA$1.8 million) in an interest-free loan for expansion.

The company, Mother Labs, has three years to spend the money and five years to repay it.

“It’s smart money, and it will be truly helpful for us to grow and expand,” Mother Labs CEO Brian Bain said.

 States and nonprofits step in

There is hope for new U.S marijuana entrepreneurs who need help, though.

Several states have created assistance programs to address the lack of federal funding and guidance for companies that work with high-THC cannabis. Some state regulatory agencies have said that the lack of government business support is a major culprit behind the scarcity of cannabis business owners who aren’t white and wealthy.

“There’s a lack of diversity at the ownership level in cannabis,” Watkins said. “To change that, we need to provide assistance for all.”

California, Illinois and New York are among a smattering of states that offer at least some help for new marijuana startups.

In May, a venture capital investment vehicle owned by the state of Connecticut disclosed it had invested $1.25 million in the marijuana edibles company 1906.

Connecticut Innovations and 1906, which relocated to Connecticut from Colorado, said it was the first time a state had invested directly in a cannabis business rather than through a pension fund.

“We view this as an emerging area for investment—and one we’re happy to explore,” Lauren Carmody, vice president of marketing and communications for Connecticut Innovations, wrote in an email to MJBizMagazine.

“As with any of our investments, there is calculated risk. But we are accustomed to assessing risk and investing in companies that can deliver returns and create jobs in Connecticut.”

Colorado’s Cannabis Business Office in July announced it had chosen 16 social equity marijuana companies to receive Cannabis Business Pilot Grants of up to $50,000 from the state.

Announcing the grants, Gov. Jared Polis said, “Our nation-leading work promoting equity and supporting innovation in Colorado’s thriving cannabis industry supports our economy, saves small businesses money and ensures our state remains the best business-friendly destination in the country.”

Meanwhile, nonprofit groups such as Make Green Go, NuProject and the Forty Acre Co-op offer business advice and occasional loans to new cannabis businesses, too.

“To start a new business in any field can be a capital-intensive process, and in cannabis, it is very capital-intensive,” Watkins said. “It’s hard to bootstrap a cannabis business without any help, compared to opening a food truck or something.

“That’s why it’s important to get the word out about the assistance that is available and make sure people know how to find help.”

 MJBizMagazine reporter Solomon Israel contributed to this story.