Week in Review: Raids Renew Crackdown Fears + Hefty Interest Rates the Norm for MMJ Industry

Just when you thought the federal crackdown on medical marijuana had become a thing of the past, the government launches one of its largest coordinated raids so far this year.

Last week, the Drug Enforcement Administration stormed a handful of dispensaries in Washington State and sent threatening letters to others, jolting an industry that had been lulled into a false sense of security. Agents entered some of the businesses with their guns drawn, seizing marijuana plants, terrifying employees and conjuring up images of 2012, when raids seemed to be a weekly occurrence in the West.

Officials with the DEA said the raids are the result of a two-year investigation, but they didn’t provide details on why the businesses were targeted or what they are accused of doing. Without that information, it’s difficult to tell if the dispensaries ended up in the federal cross hairs because they are:

a) fronts drug trafficking (which the feds previously said would be the focus of any raids, though it hasn’t played out that way)…

b) violating state MMJ laws…

c) doing something else the government has an issue with…

d) all of the above.

The maddening thing about these raids is that we often never hear much about them again, making it difficult to identify the reasoning behind the actions.

It’s one thing to raid a business that is selling out the back door, which most respectable players in MMJ would agree is appropriate. It’s another if the government is shutting down state-compliant businesses to send a message to the industry.

The reasoning is very important: Without being able to identify why the government is raiding dispensaries, it’s exceedingly difficult for owners who have built respectable, compliant businesses to understand what they should or shouldn’t be doing.

The raids have stoked fears across the industry that we could see a renewed crackdown. They also spooked some entrepreneurs in Nevada who attended a business seminar last weekend hosted by the National Cannabis Industry Association. Optimism among the crowd was high, but some attendees told MMJ Business Daily that the raids were making them think twice about starting up.

The hesitation is understandable. But the risk probably isn’t that great considering that Nevada’s dispensary bill sets up a solid system of regulations and oversight, which should help keep the feds away.

Additionally, there are vague indications that the federal government might think the dispensaries it targeted are fronts for commercial drug dealing – so it’s possible the Washington raids are not part of a larger crackdown on state-compliant businesses.

If there’s anything we can take away from the recent raids, it’s that businesses in states without formal business regulations continue to face the highest risks. In fact, the federal government has largely turned a blind eye when it comes to states with such strict oversight, such as Colorado, Maine and New Mexico. It instead has focused on areas like California and Washington State, which don’t have formal dispensary regulations.

Fortunately, the industry is not alone in this fight to end the crackdown. The California Democratic Party passed a resolution last week calling on President Barack Obama to end raids against medical marijuana dispensaries in states where they are legal. The resolution also asks the president to respect voters in Colorado and Washington by letting the two states move forward with their recreational cannabis industries, and it requests that the government appoint a commission to look into reforming US marijuana laws. This kind of pressure could ultimately help lead to a shift in the government’s approach to medical marijuana.

Also last week, MMJ Business Daily wrote about how a new dispensary in New Jersey received financing at a whopping 25% interest rate. While such rates are considered ludicrous in other industries, they are the norm in MMJ, particularly for dispensaries, cultivation sites and other businesses that actually handle the plant. Cannabis businesses often report paying interest rates of between 20%-30% to land loans from private individuals, and in many cases they have to give up big chunks of the company to secure equity investments.

The high interest rates are discouraging, but they are not surprising given all the risks involved in this business. Expect rates to stay high until we see real change at the federal level.

Other top stories in MMJ Business Daily:

Standards, Certification Program Could Take Industry to Next Level

New England Holds Cannabusiness Potential

Colorado Springs Sinks Recreational Marijuana Business