Private Equity Firm Offering $250 Million in Cash Advances to Marijuana Businesses

, Private Equity Firm Offering $250 Million in Cash Advances to Marijuana Businesses
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.

3 comments on “Private Equity Firm Offering $250 Million in Cash Advances to Marijuana Businesses
  1. Steve Sarich on

    How do you know when the medical marijuana industry has come of age? The answer is simple….you see the loan sharks circling. If you’re a dispensary owner in Seattle and you’re hurting so bad you need an $8500 loan, at 28%, you should probably be looking for a new vocation. If you’re willing to pay 28% “vig” you can probably find some local Seattle loan sharks that would be happy to do business with you.

    In a news story just out today on CNN Money, the “entreprenuers” at Privateer Holdings (“Pirateer” might be more accurate) announced that they were unable to find a single loan-worthy dispensary on their recent scouting trip to Seattle. Or was it that no one in their right mind was willing to pay the 28% interest?

    Steve Sarich
    Cannabis Action Coalition

  2. Tommy Hitch on

    Being a banker from a small regional bank, I know what banks have to go through. State chartered Credit Unions could be a good. Has anyone thought of alternate currency, created and issued by the state only for this purpose? This is how it will work -> The state creates a currency -> then sells it to the buyer for US dollars -> buyer takes the alternate currency to marijuana seller -> Marijuana seller takes the currency to state and exchange for US dollars -> state direct deposits US dollars to marijuana seller’s bank account. This entire process can be done electronically. Ask me how and i will tell. Just need to be creative. No more taking bags of money to the bank to deposit.

    Tommy Hitch

  3. Kyle Rome on

    We have programs set up to provide unsecured business lines of credit to all industries including the MMJ industry. We understand the limited options the MMJ industry has for funding due to federal regulations and we have a system in place to allow those companies to receive funding from reputable sources.

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