What Changes May Be Coming To The Marijuana Lending Industry?

If you live in a state where medical or recreational marijuana is legal and have always dreamed of owning your own business, you may be tempted by the high profit margins reported by the dispensaries and marijuana delivery services in your area. However, with the significant conflicts between state and federal governments when it comes to marijuana's legality (and the federal ties of most large banks), financing these types of ventures can be much trickier than starting other businesses. Read on to learn more about a court case that could significantly expand your ability to start a marijuana dispensary in a state where marijuana has been legalized.

What are the current challenges to funding a marijuana-based business? 

The sale of marijuana still carries some stiff penalties under federal law, even in states where this activity has been legalized by the legislature or courts. Lenders extending credit to customers who have stated an intent to use these funds for something declared illegal by the federal government can face prosecution or hefty fines themselves. As a result, banks whose deposits are insured by the Federal Deposit Insurance Corporation (or credit unions whose deposits are insured by the National Credit Union Administration) are generally unwilling to lend small business loans to otherwise-qualified businesses dealing in marijuana. Because the vast majority of reputable banks and credit unions have deposit insurance with one of these two national agencies, it can be very difficult to obtain legitimate financing for a marijuana-based business without providing false or misleading information on the nature of your business in order to secure a loan.

This lack of access to bank funds generally drives these businesses' capital underground, dealing in cash and barter -- and making business owners much more vulnerable to theft or armed robbery. While marijuana dispensaries can provide a significant return on your initial investment, the physical risks of financing such a business can make the money at stake seem insufficient when it comes to hazard pay.

How could the outcome of this case affect your ability to start a dispensary or other marijuana-based business?

One pending court case involves a marijuana credit union attempting to overturn a denial of its federal charter. While the outcome of this case will only be binding on banks lending to Colorado businesses, a decision at the federal appellate level could change marijuana lending policies nationwide, eliminating the penalties assessed on banks and other lenders providing start-up capital to marijuana-based businesses. If the plaintiff's argument is successful, you should be able to raise the funds needed to start your business without jumping through any more hoops than are required of those starting other types of businesses. Because of the popularity of dispensaries and similar businesses in states with legalized recreational or medical marijuana, you should have no trouble coming up with a profitable business plan to secure your needed funding.

To learn more, contact a bank like Juniata Valley Bank