Cannabis Lending? How Banks are Getting Comfortable

Huber Bongolan
November 2, 2020

I’m a millennial but I’ll admit that my perception of cannabis probably matched that of many of your grandparents: illegal, dangerous, and a gateway drug that only losers did.

Call me a straight-edge but that’s just the way my father raised me. I couldn’t help it.

I view it very differently now.

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  • Cannabis is a legitimate business and has come a long way to overcome the “back-alley” perception that it has historically been portrayed as.
  • I’m hearing a lot more “maybe’s” and “let’s talk about it more” in my conversations with the lender community.
  • Don’t get too excited. These are just baby steps towards acceptance.

My perception on cannabis started to shift the first time I walked into the Downtown LA MedMen. Insatiably curious, I felt like such a rebel walking into that store for the first time (lame, I know). To my pleasant surprise the entire store was clean, safe, organized, and filled with employees with a healthy passion for the plant.

This is a real business. Not some back-alley activity that was portrayed to me as a child.

Cannabis and Banking

In the banking sector, cannabis used to get as quick of a loan denial similar to that of hotels today. But something’s changing…

In a previous blog post, I discussed how debt markets have adjusted to COVID. The top three things we are seeing are (1) lower leverage, (2) higher interest rate spreads, and (3) lender’s denying riskier projects.

You may have noticed that cannabis was not on my list of projects getting quick denials. On the contrary, I’m hearing a lot more “maybe’s” and “let’s talk about it more.”

According to, “federal drug laws classify marijuana as a Schedule I drug. A first possession offense — of any measurable amount — carries misdemeanor penalties of imprisonment for up to one year and a minimum $1,000 fine.”

Most banks will use this Schedule I classification to deny all projects that have any relation to cannabis. They may also say something along the lines of “we are FDIC insured so it’s not worth the risk.”

Real estate entrepreneurs in the cannabis space were previously considered unbankable. But that is no longer true. Like me walking into MedMen for the first time, bankers’ perception of cannabis-related properties are starting to turn the corner.

Previous Financing Options

Players in this space historically only had three options for financing:

  1. personal equity,
  2. private capital,
  3. or debt funds.

These three parties are all unregulated by the federal agencies that oversee banking and finance companies, and are hyper focused on legally-earned returns.

Borrowers would expect 50–60% loan-to-value and an interest rate of at least 9% or higher. “How is property value calculated here?” It is based on market rents and NOT what the cannabis tenant is paying the landlord. Landlords would charge higher prices to cannabis tenants, but that higher rent would not be helpful for financing.

These options are still available today but now we have additional financing options.

New Financing Options

Let’s pump the brakes here and not get too excited. Most banks still adhere strictly to the “schedule I classification” reason. BUT, as mentioned earlier, I’m hearing a lot more “maybe’s” and “let’s talk about it more.” These statements are more likely to come from local and regional lenders with rates between 4.75% to 5.75%

Here are some of the new things I’m hearing from the lending community:

  • “Maybe on cannabis, let’s see the deal”
  • “Cannabis-related retail tenants only; no growing”
  • “Income from cannabis must total less than 33%”
  • “CBD is okay but absolutely no THC” (here’s the difference)
  • “45% loan-to-value based on rents of a non-cannabis use”
  • “Cannabis-related tenants must sign a ‘kick-out clause’ meaning that the tenant can be kicked out at any time for legal purposes”

While lenders are still very hesitant to consider deals that involve cannabis, the industry is starting to take baby steps in the direction of acceptance.

The quote I heard that I think rings most true was “it’s just a matter of time.”

What do you think?

Will there ever be full acceptance or will there always be some type of resistance?

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