IF CANNABIS BUSINESSES can’t get bank loans, aren’t they totally screwed?
Not necessarily. I actually don’t see pot businesses getting screwed in this particular manner. Even for non-pot startups, small business loans are generally out of reach nowadays. Most entrepreneurs start their ventures with savings, credit cards, and maybe a loan from a friend or family member. And most pot business owners—especially growers—coming from gray and black markets tend to have cash.
But let’s say you don’t have cash and are thinking about a (hard money) loan. A few years back, Mark Cuban said in an interview on Bloomberg, “If you are starting a business and you take out a loan, you’re a moron.” That’s intense, but the rationale is that fixed payments can cripple a young business that needs to reinvest every dollar earned. And with all the uncertainty involved in starting a business—especially a pot business—a savvy owner should avoid shackling herself to a lender, signing personal guarantees, and so on. Really, the only good thing about debt is that all the business upside stays with the founders.
Continue reading this week’s Ask a Pot Lawyer column!