Navigating the Highs and Lows of Financing in the Cannabis Industry in California

Share This Post:

Considering a foray into the (entirely legal) cannabis industry, not as a grower but as a financier? The question arises: if your investment goes up in smoke due to a borrower’s default, are you inevitably left in the ashes? Absolutely not. Let’s explore some savvy strategies to ensure your investment in the green doesn’t wilt.

Legal Quagmires and Collateral Concerns

Diving into financing operations in the cannabis sector comes with its unique set of challenges, especially when your borrower veers into illegal territories. In such unfortunate scenarios, your collateral is at risk of being confiscated. However, with vigilant review and timely objections to any notices of intent from state and federal agencies, you can often reclaim your assets. A crucial piece of advice: once reclaimed, keep the collateral away from the borrower to avoid repeating history.

The Silver Lining: Limited Criminal Liability

The specter of criminal liability or RICO charges for lenders in these situations is more myth than reality. Unless you’re knowingly financing criminal activities, your legal exposure remains minimal. Breathe easy but stay informed and cautious.

Strategic Financing in the Cannabis Sector

Collateral Wisdom: Secure your investment by insisting the borrower pledges their grow license as collateral. This unique asset, often overlooked by others, is invaluable and can significantly secure your position. Should the worst happen, and you find yourself needing to step into the borrower’s shoes, this license puts you ahead in the complex world of cannabis cultivation licensing in California.

Real Estate and Equipment Security: Beyond the grow license, ensure a Deed of Trust on the property and a UCC-1 filing for the equipment. Given the high value of cultivation equipment, securing these assets is crucial. An “all inventory” and “all equipment” approach can safeguard against any oversight.

Dealing with Abandoned Property: The aftermath of a default can leave you dealing with abandoned property. The value of left-behind assets, like grow lights and fertilizers, can be significant. Navigate this situation with a clear understanding of your rights and obligations, whether it involves a simple disposal or organizing a public auction for items valued over $700.

Conclusion: A Pragmatic Approach to Cannabis Financing

The cannabis industry, with its vibrant characters and lofty promises, requires a grounded approach to financing. From the initial pledge of collateral to navigating the aftermath of a default, maintaining a pragmatic outlook is key. Armed with the right strategies and an awareness of the legal landscape, you can ensure your venture into cannabis financing is both secure and fruitful.

Questions about this article? Reach out to our team below.