Scared Money Don’t Make None

Dr. Mila K. Marshall CNW Cannabis Corner Editor

As

comes to an end, new applicants for Illinois licenses are completing their applications and paying their dues to get a chance at being selected in the state lottery. The design of the social equity program has been touted as the most equitable in the nation. Yet, advocates have worked tirelessly to bring attention to industry bottlenecks and legislative roadblocks. Access to capital is an equity issue for Black Americans. Access to capital for cannabis is challenging for the entire industry. However, being Black and an underbanked entrepreneur shows the lingering realities of the War on Drugs. With the plant still being federally illegal banks are cautious and entrepreneurs are left with few options.

While all industry newbies are cutting their teeth on other regulatory roadblocks, social equity entrepreneurs are in an even more precarious position with finances and access to capital. This isn’t an Illinois-specific issue…entrepreneurs across the nation are having to be creative and persistent.

“I grew up in an NYC public housing project, in a single-parent home. I don’t have generational wealth,” shared Osbert Orduña, CEO of The Cannabis Place. Like other social equity entrepreneurs, Orduña doesn’t have an extensive high net worth network, “Our capital raises have been driven exclusively by friends not family because although our family has believed in us, they have not had the financial ability to do so” he continued.

It’s true the financial obstacles can be relieved by banks and credit unions but the legal aspects of cannabis make it difficult for banks and credit unions to confidently service industry accounts. The legislative divide on the S.A.F.E. Banking Act is in fact stalling equity efforts at the state level. Despite banking services being accessible in cannabis-legal states services can be pricey and financial institutions are cautious about taking on too many accounts.

“With the Michigan market rapidly reaching maturity, locating and securing capital has greatly increased an already difficult task Unfortunately, most of the traditional ways to raise capital are constricted by the regulations and stigma that surrounds cannabis.” - Robert Flemming, CEO at Altered State Cannabis Company.

HT23 received its craft grow license in 2021 and has been able to secure banking services with Credit Union One. Despite being an account holder Reese Xavier, CEO and managing partner shared that his company wasn’t approved for a line of credit, making him all too familiar with raising capital in other ways.

“It is important that we understand how this industry works and I believe for companies like HT23 crowdfunding will go a much longer way because of the challenges dealing with cautious investors,” said Reese His business has successfully raised $80,000 and is launching new rounds of investor opportunities soon.

Investors are either true social equity investors looking to do good, or they are looking for a good deal chael added, “banking is hardly the challenge, overcoming under-banking, and skyrocketing costs of operations, is the real burden.” but most often a come-up. Even when the banking legislation passes, predatory lending and brokering won’t end, racially biased lending is a tool that impacts wealth building in weak market communities. Credit Union One President and CE Todd Gunderson explained the landscape of cannabis lending as a balance of risk.

Eric M. is a California social equity license holder of Gas Pedal Delivery and Distribution and is relegated to using credit unions for banking services, unlike other states that may provide low to no-interest rate loans California does not. “As a social equity licensee, raising capital has been extremely difficult.

“We’ve invested about $500,000 and engaged consultants, lawyers, and state regulators to ensure longevity and services for businesses and cannabis employees. The reality is entrepreneurs are sharp and we see a range of challenges for new entrepreneurs in this industry, and even as a financial institution must face challenges unique to our role in cannabis. With so few options for businesses to bank we have thresholds meaning our lending portfolio should be balanced as we manage financial risks.” - Todd Gunderson

For others, the complicated legislation has caused them to seek out fewer volatile opportunities in the cannabis space. “Securing capital has been hard and it inspired me to pivot to the ancillary market where the challenges of operating aren’t compounded by burdensome regulation,” said Michael W. Founder and managing member of The Cannavas Group. Mi-

Most investors want collateral in either the form of equity or property. I’ve personally found success in loans from family friends” - Eric M.

Social equity entrepreneurs are all in unique positions with many seeking the funds to create jobs and opportunities for others. But the job creators have an uphill battle with so many changing laws and even new lawmakers, it will take working across sectors to make equitable banking accessible for all.

A special thank you to National Cannabis Industry Association DEI Committee