By Anne Holland
[Updated 5/2/13] Another crack has appeared in the wall of financial services firms refusing to do business with the cannabis industry. A financial firm based in Delaware has launched a fund of $250 million to offer so-called purchase future receivables (i.e., cash advances to be repaid from ongoing business revenue) and lines of credit to marijuana-related businesses.
The funds are being offered via a third party, Guardian Data Systems, Inc., a provider of financial services to high-risk merchants including dispensaries. According to Lance Ott, a principal at Guardian, the fund’s executives come from traditional banking backgrounds.
Industry veterans will not be surprised to learn that the fund and its backers prefer to remain anonymous. That lack of transparency is not likely to concern business people in the cannabis industry, which has long been starved of the external cash investments which traditionally help burgeoning industries gain traction.
Based on the structure and rates of the loans, the fund is set to make healthy profits. The interest rates charged – between 14.9% and 28% – reflect the riskiness of the cannabis industry. The advances and lines of credit will have built-in safeguards to reduce that risk: successful applicants must show existing cash flow or personal financial resources to cover the amount loaned, and repayments will be automatically debited in daily or weekly installments. In certain cases, the loan could be tied to – and show up on – the applicant’s personal credit report.
Business owners who can meet the terms of the loans and who are willing and able to pay the listed interest rates will be able to take advantage of funds through three different programs: Lines of credit for businesses with funds in a bank account, cash advances up to $200,000 for organizations with at least $10,000 in monthly sales flowing through a business account, and a separate merchant cash advance program for businesses with established and legal credit card processing facilities. This last type of loan is not available to dispensaries or other businesses which touch cannabis itself because they cannot legitimately accept credit card payments at this time.
Thus far, the fund has loaned $250,000 to a grow operation in CO and $8,500 to a dispensary in Seattle. At maximum loan amounts, the fund could provide advances or lines of credit to over 1,250 individual businesses or locations.
No matter how carefully veiled the players are, this is the first move by an East Coast financial firm to back off from the “no MMJ!” precipice most bankers jumped off in 2012. This move will be viewed as a shot in the arm to expanding business owners and as a step forward to industry legitimacy.