Cannabis Loans and Investments 2024

00:00:00:00 – 00:00:06:10
Aaron Pelley
Okay. I think we’re like.

00:00:06:12 – 00:00:23:21
Vince Sliwoski
Okay, guys, I’m going to start. Hey, everybody. Welcome to the Cannabis Loans and Investments webinar. Really happy to be here. We had a scramble getting on with tech issues, so sorry if any of us seems a little frazzled. Mostly me, but I’m here typing the chat if you can’t see or hear us. We’re really happy to be here today.

00:00:23:21 – 00:00:46:09
Vince Sliwoski
My name is Vince Sliwoski. I’m a business lawyer, cannabis business lawyer here in Portland, Oregon. Mostly a transactional lawyer, but I have a litigation background, as does Griffen Thorn. The guy with the checkered shirt sitting there in our Los Angeles office. Also, it’s a talented transaction worker. I work a lot. And then Aaron Pelley, the guy who’s been at this probably longer than any of us.

00:00:46:11 – 00:01:05:01
Vince Sliwoski
And Aaron, you’re up in Seattle, Washington. And Aaron is a dyed in the wool litigator, but he sees a lot of business loans and investments and is going to be here to talk to us about that, to. So sort of without further ado, I’d like to start, but I first want to say thanks to everybody who typed in questions.

00:01:05:01 – 00:01:21:01
Vince Sliwoski
We’re going to answer some of those questions as we go. And to tell you that we’re soliciting questions even as we go. So if anything comes up and you think of something and you want to type it in, we’ll do our best to answer and we’ll probably be able to get to most of them. So let’s see how it goes.

00:01:21:03 – 00:01:44:23
Vince Sliwoski
I’m going to start with a question for Griffen, which is going to inform a lot of what we talk about today. And it’s the fact that marijuana may move to schedule three this year at the federal level, and that’s obviously going to have effects on all kinds of things. One of them is cannabis loans and investments. Griffen, Big picture, what do you think some potential effects are for cannabis loans and investments, assuming it goes to schedule three?

00:01:44:25 – 00:02:14:03
Griffen Thorne
So I think you got to take a step back and look a couple of years ago and how good the field was back in. Forget, for example, in California, where I work in practice early on in the recreational licensing era, we saw a lot of folks who wanted to invest in a cannabis business. And I I’ll go even a step further back, which is to talk about the difference between an investment alone at a high level where an investment in both situations, somebody giving money to a cannabis business, right?

00:02:14:05 – 00:02:41:29
Griffen Thorne
The expectation what they get back is the main difference, right? So when in a loan you give money to a cannabis business, you get paid back plus interest over time, whereas in the investment situation you give money to a cannabis business, you get some stock in the business and you become an owner of that business, right? So if we go back to 2018 and a couple of years after that even we saw a lot of people wanting to buy into a cannabis business, want to drop some money and get a small ownership stake.

00:02:41:29 – 00:03:01:06
Griffen Thorne
But as the industry started to really suffer, especially in California, people stopped wanting to do that. And what you saw happened was more debt finance and more convertible debt, whereas people were not they just didn’t want to have an ownership stake in a lot of these businesses that were failing and couldn’t go into bankruptcy court.

00:03:01:08 – 00:03:06:14
Vince Sliwoski
Could you explain just real quick what convertible debt is? Because I’m guessing some people may not want that term.

00:03:06:17 – 00:03:31:21
Griffen Thorne
Yeah. So convertible debt is where you start off loaning money through your cannabis company. And if something happens and you specify this in the contract, you can convert that debt into equity or stock in the business. So you want to $1,000,000. There’s a predetermined formula usually. And if something occurs sometimes purely the lenders election, they can convert that debt into equity in the cannabis business.

00:03:31:21 – 00:03:50:16
Griffen Thorne
So it’s more, I would say, safe than just a straight equity investment where you’re buying stock. If the business fails, you know, you’re out of luck, you’re not getting that money back. But in a convertible situation, if things aren’t going well, you could elect to stay at that or not convert depending on the type of contract. So you started to see an increase in that.

00:03:50:16 – 00:04:12:17
Griffen Thorne
I would say that’s that’s been fairly common over the last couple of years. So what does that have to do with rescheduling? We’ve written about that a lot on the blog. Anyone in this space is probably familiar with what’s about to happen potentially. Reportedly the biggest change that rescheduling is going to have is that it’s going to eliminate to e going forward if it gets put on schedule three.

00:04:12:19 – 00:04:37:11
Griffen Thorne
And what that means is one of the biggest impediments to financial success in the industry is going to go away on a go forward basis, some people argue might be retroactive. I don’t think that’s persuasive. But basically without to 80 and all the problems that that causes, I think a lot of these cannabis business people might want to be people might be more willing to invest in businesses that have fewer financial roadblocks in front of them.

00:04:37:11 – 00:04:58:28
Griffen Thorne
Right. So 280E tends to be the biggest one state taxes, legal market, all that stuff tends to be second, if not just as bad as 280E. Obviously that stuff is not going to be affected by rescheduling, but the 280E roadblock will get lifted if that happens and we it’s this isn’t just anecdotal. I mean, when that first came to light, this was going to happen.

00:04:58:28 – 00:05:23:10
Griffen Thorne
You saw a lot of flurry of purchasing the public cannabis companies stopped right to their value went up, which means people wanted to buy into those companies. You know, buying public stock obviously is different from private equity deals. And so I still expect that to happen. I mean, even since then, we’ve seen an uptick in interest in in that not in the public context get answered.

00:05:23:10 – 00:05:39:12
Vince Sliwoski
Erin, Anything to add? And do you think it’s a sort of a different analysis in a in a situation where the where the state doesn’t allow nonresident ownership or anything like that, or is it just kind of the same across the board of cannabis goes to schedule three.

00:05:39:14 – 00:06:08:07
Aaron Pelley
I think for a schedule three. That’s the that’s the biggest benefit. I think people have touted other benefits. I think there’s a lot more downsides to it that than that single upside. But that’s single upside in terms of the success for businesses, for sure. I mean, if nothing else, you know, I in Oregon and Washington and California, I’ve talked to clients where the the tax burden alone is just the difference between successful or not successful.

00:06:08:07 – 00:06:25:01
Aaron Pelley
And when you’re looking at investment, people wanting to invest in companies, we now are at this place in the industry where people can’t just promise blue sky and say, hey, this could be this could be anything. Here’s my numbers. And they’re all just pulled out. They have the numbers and a lot of times the numbers are good. And the reason they’re not good is because of to 80.

00:06:25:04 – 00:06:40:22
Aaron Pelley
Some people are being taxed at a rate of 70 to 80%. That’s just like there’s no businesses that can survive. You must truly, truly love being in the industry if you’re willing to be taxed at 80% and then still be able to run it and make it in a company. You’re a rock star.

00:06:40:24 – 00:07:03:02
Vince Sliwoski
Yeah. So suddenly overnight, I’m sort of fond of saying a lot of these businesses margins should just increase dramatically. Right? And they should look like much sexier candidates for lenders. And the businesses themselves should be able to bargain for better rates and better terms of all these loans. Right. They’ll just have more leverage because they’re a more attractive financing candidate.

00:07:03:02 – 00:07:06:03
Vince Sliwoski
Do you guys would you agree with that more generally?

00:07:06:06 – 00:07:07:15
Aaron Pelley
yeah, for sure.

00:07:07:17 – 00:07:29:04
Vince Sliwoski
All right. So if we don’t get total cannabis scheduling, which a lot of us would like at least a schedule three things should really help with respect like basic business viability and their ability to borrow. We got some related questions on this. We got a couple of questions around just one is very specific. It says, Can a cannabis state issued license be collateralized for a loan?

00:07:29:04 – 00:07:54:03
Vince Sliwoski
Other people have just asked about business model issues, I guess I’d say around borrowing and lending with cannabis businesses. I want to do address that question and ask you guys for thoughts on this. Probably too. In my view, there are two really big sort of threshold issues there. One is regulatory questions, right? And the big question there to start is often does the lender have to be vetted and disclosed to make all of them?

00:07:54:03 – 00:08:26:21
Vince Sliwoski
Right? And that’s a very state specific question. All of these cannabis programs are different. Some are similar, but each one snowflake ultimately and this sort of question about like if the lender can just make a loan and not have to deal with regulators at all and nobody has to worry about that, is something you should probably run by an attorney or run by your regulators or whatever, because often lenders do have to be vetted and disclosed and the question is, you know, what level of vetting and disclosure may be required?

00:08:26:21 – 00:08:48:28
Vince Sliwoski
Are they going to have to go through the whole rigmarole of like fingerprints and background checks and things like that? Or is it just a notice thing with the state where they just have to say, hey, I lent this business a large amount of money, etc. And when you get into issues of like convertible debt, like Griffen talked about earlier, where there’s a trigger, where suddenly the lender may become an owner of a business, they’re even more likely to have to be disclosed at that point.

00:08:48:28 – 00:09:06:05
Vince Sliwoski
And it’s a question of, you know, do you have to do it before the trigger for the equity issues? Can you do it almost like after the fact? It’s really important that you get that stuff in your documents. Everybody’s ready for it. And so there’s no license issues. The second issue that I often.

00:09:06:07 – 00:09:32:12
Griffen Thorne
Get them on their. Yeah, yeah. One other point, that issue that comes up quite a bit in structuring loans is and this is sort of related to what you were just mentioning with convertible debt. But one of the things lenders like to ask for is a pledge when you give them a loan and a pledge basically says you’re loaning money to company A and company A’s owners say to the lender, if company A doesn’t pay you back on time, it defaults.

00:09:32:14 – 00:09:52:15
Griffen Thorne
We’ll give you our stock in the company. Right? We’re collateralize in our stock. So if the company defaults, then the lender can then take the stock and would be actually an owner of the cannabis business. And so in that case, without a doubt, you’re going to need to go through some disclosures and probably hitting on the state. There’s some sort of notice requirement, the very least.

00:09:52:15 – 00:10:18:19
Griffen Thorne
But that would change when the pledge, when the lender takes control of the equity in a pledge situation. And as you can imagine, when that happens, it’s usually probably not the friendliest situation. Like there’s a dispute that the borrowers defaulted. They’re not going to want to comply with regulatory requirement or at least help the lender in complying. If you’re in a state like California, the regulators won’t even really talk to anybody except the licensee.

00:10:18:19 – 00:10:37:21
Griffen Thorne
And so things can get pretty area and all this stuff that it’s very state specific in where I work. Cities here add their own layer of complexity often so you need to really be keyed into this. And there’s not a one size fits all approach with a state by state lending rate.

00:10:37:24 – 00:10:56:21
Vince Sliwoski
Yeah, I agree. And that kind of segues into the second issue I was going to talk about. Griffen actually mentioned it, which is security in the license. And someone asked that related question. I mentioned Can a state issued license be collateralized for a loan? The answer is yes sometimes. Right. So like here in Oregon, Right. It can. And that’s kind of a curious thing, right?

00:10:56:21 – 00:11:21:04
Vince Sliwoski
Because you think of a license. What’s a license? Why? Usually it’s just like a permission given to you by the state. And that’s personal to the licensee, Right? Think about a hunting license or a fishing license or a driver’s license. That’s something that they give somebody. The person can’t then turn around and say, hey, I’m going to let this other person use my driver’s license or a hunting license or fishing license or I’m going to pledge it as collateral for something they’re giving me.

00:11:21:07 – 00:11:42:04
Vince Sliwoski
Cannabis licenses can be a little different. In Oregon, for instance, the state will let you do that. They treat the license almost like an asset and not a license per say. Right? But every state is different and it’s really important to sort of check that out and understand that it’s fluid. Right. Some data will go to court in Oregon and a judge is going to look at and say, what were you guys talking about?

00:11:42:10 – 00:12:05:12
Vince Sliwoski
You can have a security interest in the license. I don’t care what the whole city has been doing. Right. So that’s a very important question for lenders and borrowers. And then the other question is, what else can you collateralize? Well, can you collateralize the cannabis itself, the cannabis inventory? In many states, the answer is yes. You can collateralize the controlled substance and you can use CCS and other things.

00:12:05:14 – 00:12:22:18
Vince Sliwoski
But, you know, do you as a lender really want to go in there and take possession of a controlled substance? And what’s the protocol for doing that if it’s allowed with the regulators? And that’s kind of a step further, right, than just lending money to a cannabis business. Now, all of a sudden you are a trafficker in the classic sense.

00:12:22:20 – 00:12:41:23
Vince Sliwoski
You want to sign up for that. Do you actually want that kind of security or do you just want security and maybe some equipment, something like that? So these are really big considerations. I guess that’s it for both borrowers and lenders and cannabis businesses. Did I miss anything, guys? Anything else to add as far as security or regulatory questions?

00:12:41:25 – 00:12:43:00
Aaron Pelley
I mean, what I.

00:12:43:02 – 00:12:44:06
Griffen Thorne
So.

00:12:44:09 – 00:13:03:04
Aaron Pelley
I would to say what I, what I what I see mostly for collateralization although some some some as far as lenders go, they will sometimes often try and get in there with the license. A lot of times they want the property or they want some of your personal assets or your personal pledges. And that’s where it can get a lot, actually a lot of clients.

00:13:03:07 – 00:13:26:13
Aaron Pelley
Unfortunately, because the cannabis industry is so volatile, it is a it’s something I try and keep my clients from doing is doing those personal pledges are putting up their own homes or assets to essentially get those loans for this kind of companies. But sometimes there is no choice when you go back to your 2015 to 2018, Washington State did not allow anybody but Washington residents to invest in or own a license.

00:13:26:17 – 00:13:34:28
Aaron Pelley
So there was a very closed system with very few opportunities for people to borrow from. And so, you know, some people just did what they had to do in order to for it.

00:13:35:00 – 00:13:56:05
Griffen Thorne
And I guess I’d add to that that if you’re a lender in the space, you need to think real hard about what whether you want to actually be involved in the business. If there’s a default. So things like pledges, what does that mean? If you have to take the stock of the companies, suddenly you own a cannabis company and all the issues that come along with it.

00:13:56:07 – 00:14:13:13
Griffen Thorne
What does it mean to take the collateral interest in the goods? Can you even legally sell that irrespective of the fact that you could maybe take a security interest? And then if push comes to shove, what are you going to do with £80,000 of biomass? Right. It’s not going to be something that the average lender is equipped to deal with.

00:14:13:15 – 00:14:32:28
Griffen Thorne
And so they start looking for other forms of collateral. And zero noted, you know, the best thing to collateralized often is real estate. But in my experience, most cannabis businesses don’t own their own real estate. They lose it, right? And so there’s all kinds of other things you start to see or you just start to wonder is just won’t be.

00:14:33:00 – 00:14:44:14
Griffen Thorne
They won’t loan money to cannabis companies that don’t have anything to offer, right? So at some point, a lot of these businesses are sort of stuck without the ability to get financing.

00:14:44:16 – 00:15:01:09
Vince Sliwoski
Yeah, and I’d add on the borrower side, you should be organized. You know, like if the lender essentially what you’re doing is you’re asking the lender to be a bank for you. Right. And if you were to go to a bank and apply for a loan, they would ask for all kinds of stuff. They’d ask for all your company documents, your operating, your material, whatever you got.

00:15:01:11 – 00:15:23:09
Vince Sliwoski
But they also want a pretty like, accurate picture into your financials, right? So they’d want panels and things like that from your business and a balance sheet. And yeah, a bank would require a personal guarantee. Often on a small business loan. So you kind of got to I would say that if you if you want to work with a lender and the lenders sophisticated, they’re going to ask you for all the stuff kind of be organized and be prepared for that.

00:15:23:09 – 00:15:39:21
Vince Sliwoski
We run into issues a lot of the time where, you know, a client will come to us and say, Should I lend money to this business? And we say, Yeah, probably, but get some financials first, right? They’re asking you to to be a bank. So that’s just sort of a tip that I would give people half, Half the time people don’t care.

00:15:39:21 – 00:15:56:25
Vince Sliwoski
And half the time people are just like, okay, promissory note, hundred and $50,000. I assume it’s collectible because it’s a it’s a business that’s that’s running. But that may not be enough for some lenders and some borrowers should be prepared to sort of organize themselves financially and present themselves in that way.

00:15:56:28 – 00:16:21:05
Aaron Pelley
And that’s actually one of those things that you can either do through the firm or yourself with with a lawyer or by yourself. But like a due diligence checklist is not that hard to come up with and present it to somebody. If you’re going to be doing the investment that you go and get that due diligence checklist and give it to them to get back to you so that you have all those financials, all that information and data to kind of decide if this is a good investment or not.

00:16:21:08 – 00:16:44:06
Griffen Thorne
Right. I want to jump on that too. And I do a lot of due diligence on just in general and different kinds of transactions. And in my in my time here, I’ve done quite a bit on borrowing and investment transactions, but I cannot tell you some of the crazy stuff. I mean, I just know attorney client privilege. I can’t tell you some of the crazy stuff I’ve seen happen over the last few years.

00:16:44:08 – 00:17:04:28
Griffen Thorne
It is imperative that you’re giving money to someone, whether it’s through an investment or a loan. If you actually understand who you’re giving money to. Like the example I’d like to give is if you’re going to go buy a car off Craigslist, you’re going to go look under the hood and take it for a test drive. But for some reason in this industry, there’s a lot of people like less so in 2024.

00:17:04:28 – 00:17:30:01
Griffen Thorne
But certainly when the markets just open up, we would just throw money at these companies because like, you can’t fail, right? This industry is going to it’s going to take off and it hasn’t. Right. It’s like failing pretty much across the board, right, in a lot of these states. And so especially today. But I mean, so many times where we start to look at things like licenses and the business might have let a license lapsed that it needs to operate.

00:17:30:01 – 00:17:50:04
Griffen Thorne
So that means it’s not operating legally or, you know, it’s it’s going to we’ll find out in the middle of of a purchase or an investment or something that there’s active litigation, including like litigation about. This is some amazing litigation about ownership when you’re buying a business. So people are saying, I’m the true owner and you’re trying to buy the business.

00:17:50:08 – 00:18:13:23
Griffen Thorne
So what else? Like you’re going to get sued, right? So it’s really key to do this diligence. I mean, from the borrower’s perspective or the company who’s get receiving the investment, probably less so because you’re just getting a money, money from somebody. But certainly for lenders and investors, if it’s absolutely 100% mission critical.

00:18:13:25 – 00:18:44:19
Aaron Pelley
Now, we have to know we found out that there wasn’t even a lawful license. The California cases are they’re being presented as I think that the newest term that’s that it’s under his legacy license which is which and it’s like you’re not operating legally at all. And then and then again, I think I have one client who we had to get the money back for, and I’m not sure any amount of due diligence could fix this, but the person sold the license to three different people and tried to stop the.

00:18:44:21 – 00:19:01:00
Aaron Pelley
He actually sold it to two of them, though, to get money. And so, yeah, it’s a crazy world out there. And you deal with a lot of people that are, you know, they’re risk takers and they’re outlaws. So you have to be really smart about what your what you’re getting better. Yeah.

00:19:01:03 – 00:19:16:08
Vince Sliwoski
And borrowers could do a little diligence on lenders to people don’t think about it that way but that’s true, especially in this situation where you’re heavily regulated and the lender may one day have to be disclosed to somebody, right. You want to make sure that they’re able to even be on a license in the first place and all that.

00:19:16:08 – 00:19:20:13
Vince Sliwoski
So there are a lot of considerations, but that’s a good lawyer can walk you through it.

00:19:20:15 – 00:19:57:14
Griffen Thorne
And I will. Just a problem with that, too. I mean, I don’t disagree with events from a borrower’s perspective. The one pitch I usually make, the people who are receiving the diligence requests or the borrowers or the sellers or the companies listening, the investment is that if you’re if you’re going to work with a lawyer at any point in the process, this is probably the best place to do it because it’s so easy to drop the ball on making disclosures and the due diligence process to not disclose something material and then suddenly later get sued for fraud or concealment, which obviously can lead to punitive damages or or whatever it may be.

00:19:57:14 – 00:20:14:16
Griffen Thorne
And just even if it’s not intentional, just botch something and suddenly find yourself being sued for a multimillion dollar judgment, even as an individual in some cases. So that’s why I tell people that diligence is usually one of the most challenging parts of any transaction.

00:20:14:19 – 00:20:46:01
Vince Sliwoski
Yeah, so we’ve talked a little bit about like the cannabis industry was riding high from 2015 to 2018 and now things are hard and we’ve talked a little bit about like the ways that these things can go wrong with respect to fraud and damages, nothing else. Erin, As probably the most senior person here and the person that’s litigated the most, what what do you think some key considerations are for a borrower cannabis business to avoid disputes down the line when they’re thinking about taking money from any third party?

00:20:46:04 – 00:21:16:12
Aaron Pelley
If I could, if I could see the future, I suppose it would be different than an had a crystal ball back when, when some people were, especially what happened after that, you know, essentially we went through the recession and cannabis kind of kept going strong. And then in Washington state and I think even in a lot of other states that with COVID even got stronger and it was like, you know, you could almost correlate to the day that kind of when when COVID ended and the doors opened up on the West Coast, that the cannabis industry kind of went down 60%.

00:21:16:15 – 00:21:40:13
Aaron Pelley
And so I don’t think people predicted that they built their businesses up and were borrowing money and building themselves up and scaling up based on that belief that we were we were Culbert proof and we were, you know, we were recession proof. But I don’t know that anything could be more important than what we already talked about, which is, you know, making sure that you’re not taking more than you should or could and stay alive in this industry.

00:21:40:15 – 00:21:59:22
Aaron Pelley
And I see a lot of people that are coming in kind of newer that just don’t realize that that that this, you know, with the taxes and with with the kind of the ups and downs of the market itself is just not knowing truly what they’re getting into. And again, that also still kind of falls back on what we were talking about before, which is we do know we now have proof of concept of how these businesses are going to do.

00:21:59:24 – 00:22:16:17
Aaron Pelley
And so if you’re going to borrow and now at this point against a system that’s already not working, then don’t put up your personal home, Don’t put up and make sure you get contracts. One of the biggest things that we end up litigating in terms of borrowers and lenders ends up being it’s I’m still stunned at how many.

00:22:16:19 – 00:22:37:15
Aaron Pelley
I literally did have a case where somebody made a deal on a napkin, a cocktail napkin. I have a lot of handshake deals. I have a lot of money transferring from one person to another in a paper back. $800,000 is public record, by the way, and that privilege. But it’s you know, a lot of things are out there that that are being done, that aren’t papered up, that aren’t you’re not getting contracts.

00:22:37:15 – 00:23:08:07
Aaron Pelley
Even something as simple as sometimes not clarifying from the lender when they join a company and they get 75% of the company or 25% of a company and they pay $100,000, is that a capital contribution or is that a loan? And having that kind of clarity oftentimes is even overlooked by lawyers, that’s really being able to make sure that you have some clear expectations about what your what your money is, what it’s for, whether you’re getting anybody back, all those things, having that all in a contract, I can’t tell you it’s the cannabis industry, right?

00:23:08:07 – 00:23:25:07
Aaron Pelley
This whole industry was built on trust and handshakes before legalization. So you have a lot of outlaws that just that’s how they’ve always done business. And unfortunately, we’re trying to retrain them or reform them to to have paper that supports their position for what they should be.

00:23:25:09 – 00:23:51:18
Vince Sliwoski
Yeah, And I think it’s interesting you talked about like sometimes it’s not even clear is this is this alone or is an equity investment? Sometimes when people are making an equity investment, I say like very certainly after due diligence on the companies operating agreements, shareholder agreement, whatever, to figure out how you get that money back out. Right. Because if you’re if you’re investing a couple hundred thousand dollars in the cannabis company and thinking, okay, you know, I’ll start getting this money back out sooner or later, maybe not.

00:23:51:18 – 00:24:09:28
Vince Sliwoski
You know, maybe the operating agreements as distributions can made at the you know, whenever the manager decides and there’s really no guardrails on that and you’re not the manager, you may even have got some 60% of company or whatever you have to figure out. Like when I put a dollar in, how does the dollar come back out? That’s true on the debt side.

00:24:09:28 – 00:24:25:15
Vince Sliwoski
That’s true on the equity side. So it’s really, really important. And I always tell people don’t even I mean, this is conservative but not too conservative. I said don’t lend to a company that doesn’t even have government documents. How do you even know what’s going to happen? How do you know how that dollar comes back out? You don’t, right?

00:24:25:22 – 00:24:31:20
Vince Sliwoski
Yeah, it’s just it’s sort of basic stuff, but it’s constantly overlooked the dollar.

00:24:31:26 – 00:24:51:15
Griffen Thorne
I mean, if you’re investing money in a cannabis business, though, Vince, you should just assume the dollar is not coming back out. And I know that’s sort of an extreme thing to say, but you have to think about it like this. Companies can’t distribute money to their owners, which if you’re doing an investment, you would be an owner unless they have available cash rate, which is usually defined to mean excess cash.

00:24:51:15 – 00:25:18:27
Griffen Thorne
So your revenue, you have profits that you could distribute cash from in most of these businesses because as Erin, we all talked about already at the top, the taxes are so problematic and other factors are so expensive to do business here. Like the profits can be razor thin if any. And a lot of these businesses are operating at a loss or even the ones that are profitable are also trying to reinvest it in maybe a new location or something.

00:25:18:27 – 00:25:25:16
Griffen Thorne
So very, very, very rarely do these businesses send a lot of cash upstream, in my experience.

00:25:25:21 – 00:25:41:05
Vince Sliwoski
But I think you’re I think you’re right. But I also think you’ve got to be ready for that. Right. If the business has like excess cash and it’s deciding I’m going to pump every excess dollar I have back into building the business, you’re sitting there as an owner of the company with quarterly tax liability a lot of the time.

00:25:41:05 – 00:26:00:00
Vince Sliwoski
Like you literally have to write a check to the IRS four times a year for income that’s been allocated to you, even if it hasn’t been distributed. So I guess what I’m saying is, know what you’re getting into, right? Like Griffen’s, right. Like a lot of these companies are lean and they don’t have a lot of excess cash to distribute to owners.

00:26:00:00 – 00:26:22:02
Vince Sliwoski
But if you’re going to sit there with some big tax obligation that you’re not even able to get $1 out of the company to cover, that’s a problem or is a problem for a lot of people, I guess I should say. Okay. Next question and we talk a little bit about this, but like, what are the forms of loan or investment that can be made into a cannabis business?

00:26:22:09 – 00:26:31:12
Vince Sliwoski
Is it just debt and equity and convertible debt, or is there other solutions or other like Protocols and pathways? Script And do you have any thoughts on that?

00:26:31:15 – 00:26:55:22
Griffen Thorne
Well, I mean, there’s a million ways you can do it within that framework. So if you’re just looking at loans, for example, you might see just a term loan, you might see a construction loan, you might see like a line of credit, which would mean you can basically draw down money over time. Sometimes it’s revolving, meaning you can just keep doing it as long as you pay back and whatnot.

00:26:55:24 – 00:27:17:19
Griffen Thorne
And there’s just a million ways to do it right. And then it always depends on the circumstance, what you’re using, the funds for, etc., on the investments side, I mean, it can be sort of similar to. Right? You can have a convertible investment, you can have just a straight I’m going to purchase this much stock. Now, you might have investments with certain milestones or vesting schedules built in.

00:27:17:19 – 00:27:42:25
Griffen Thorne
So there’s a lot of ways to do it. And I mean, then you start to see other things too, like financing of receivables and other sorts of less standard arrangements, although they’re fairly standard in other industries too. But a lot of times regulations make it more challenging here or make companies less. I mean, people just aren’t paying their bills in this in California at least.

00:27:42:25 – 00:27:50:25
Griffen Thorne
So receivable financing is kind of like the hard sell for a lot of folks. But yeah, I mean, there’s just the gamut of anything you can imagine.

00:27:50:25 – 00:28:21:10
Aaron Pelley
Basically, that came up in a meeting in Oregon. There’s an a trade group meeting in regards to the fact that I think Oregon and Washington both allow for essentially people to front the cannabis folks. And in Washington, it’s absolutely not allowed whatsoever. I think it still happens. They just find clever workarounds. But at the end of the day, that’s which can be a really big deal when you’re dealing with receivership, Right.

00:28:21:10 – 00:28:39:00
Aaron Pelley
Where people can, because people do have a pseudo bankruptcy system that they can go into, which is at a state level receivership. And I don’t know, I don’t know a lot about it in California and Oregon, but I know in Washington it ends up working almost functionally like a like a bankruptcy judge steps in. They put somebody else in charge.

00:28:39:00 – 00:28:51:27
Aaron Pelley
That person takes the keys and basically says if you can’t pay these debts that you’re being accused of owing, we’re going to sell everything, including the license. And then they pay off the debtors according to agreement.

00:28:51:29 – 00:29:10:18
Vince Sliwoski
Right. Which is another sort of reason to think hard as a lender about what kind of security are you going to get here? I mean, are you let’s say this, everything goes wrong in this town. The company ends up in a receivership. Do I have any sort of preference, or could I get any sort of preference as a secured creditor?

00:29:10:20 – 00:29:29:13
Vince Sliwoski
Those are all things to sort of think about on the front end that the interesting that’s an interesting distinction that Erin just made about certain states not allowing businesses to do things as we speak on terms in Oregon, I don’t know. That’s like a lot of the time you’ll have a farm here that just gets all their inventory over to some wholesaler and says, Pay me when you get paid.

00:29:29:13 – 00:29:49:27
Vince Sliwoski
Right. Like some states allow that. Some states don’t. There’s there’s a lot a lot to think about there for a borrower or a lender, especially in most states. And you should really understand how the businesses get paid and how the industry works in a state where you’re lending money, I guess I would say because it’s important structurally, they only need to have they’re given.

00:29:50:00 – 00:30:25:07
Griffen Thorne
No, I mean, it’s a huge problem here. We don’t have any rule like that. People are often paid 30 and then the retailers just they have a huge amount of power and they just don’t pay. And there’s just a lot of huge problems that are caused by it can’t go into bankruptcy. The state has proposed some legislatures, legislators in the state are proposing a law again this year that would mandate essentially telling on people who don’t pay on time for licenses to tell on each other and then would strip them of their ability to buy on credit like limited hearing rights.

00:30:25:07 – 00:30:49:22
Griffen Thorne
It’s a pretty bad idea, I think. I mean, it’s well intentioned, of course, but in practice it would lead to some huge problems. And so I think there’s probably more elegant ways the state could deal with it. But they just, you know, I wouldn’t take in my advice, apparently. I do think, though, that if you’re if you’re obviously if you’re a supplier and you could get code terms like that’s possible venue wages this issue.

00:30:49:22 – 00:31:15:12
Griffen Thorne
But yeah I mean that turning it back to finance when we talk about receivables financing or a lender will come in and lend money against future receivables or even buy the receivables and then have to go collecting them themselves in some cases. And so in an industry where it’s this volatile, it’s it could be hard to do. I mean, I’ve seen plenty of it, but it’s a bigger risk for a lender when people just aren’t paying their bills.

00:31:15:12 – 00:31:33:28
Griffen Thorne
Right. And we’ve seen plenty of that in the last year. I mean, you don’t need to trust me on that. There’s plenty written about it. So I think at the end of the day, you know, it’s it’s something that if a lender will do it, you’re going to see much higher interest rates and it’ll often be characterized as it’s not even a loan.

00:31:33:28 – 00:31:56:06
Griffen Thorne
We’ll say this is a purchasers receivables purchase, it’s not a loans. The usury laws therefore don’t apply and we’re going to charge like 35% interest per annum effectively, right? Whereas normally the cap in the state is 10%. Washington, Oregon is much different, but the less security or the more risk an investor takes, the higher the interest is going to be.

00:31:56:06 – 00:32:11:15
Griffen Thorne
And if you’re paying 30% interest effectively and think about what that means in reality, it’s quite a bit of money. And so it’s just it’s like there’s not the best solutions right now. So that’s one of the things that borrowers need to be cognizant of.

00:32:11:17 – 00:32:30:09
Vince Sliwoski
Somebody is asking a very specific question that’s kind of dovetails on what you just talked about, grip. And they must own a California dispensary because they’re asking what is the best structure for a California based dispensary to structure investment and accept the financing into their company? Do you have an opinion on that investment specifically?

00:32:30:10 – 00:32:50:08
Griffen Thorne
I mean, it’s really up to the business. I mean, when you think about investment versus that, right, in a debt situation, you’re taking money from somebody else. You have to give it back to them over time. And so what that the lender is going to want to do is take security, as they call it, Right. So that you, when they want, leans on your assets, they want all this stuff in effectively collaring the business for X year period of time.

00:32:50:11 – 00:33:17:01
Griffen Thorne
You are under the thumb of the lender now and then the equity situation, you’re selling your business, you’re selling part of your business in exchange for money, right? That’s how you raise capital. And so the problem with the equity side is, is the lender I’m sorry, the investor isn’t going to have the same control as a lender would, but they’ll own X percent of your business and then you’re going to have to deal with that person as a partner, as a 5% or 20% or 50% owner.

00:33:17:01 – 00:33:39:03
Griffen Thorne
And is that something you want to do? And so I think that part of the issue is you have to look at how much money you’re trying to raise and then the value of the business. And so if you need $1,000,000 and your business is valued at $10 million, so what’s the amount of equity you’re selling? And a lot of times people once businesses start to grow, they start to create different classes of equity.

00:33:39:06 – 00:34:08:03
Griffen Thorne
So you might have type A, type A and B stock or A is the normal stock that has the normal voting rights, B is non-voting and you’re selling that. So the investor has the right to participate in the profits of the company, but not in management. Right. And so there and there’s other things too. There could be liquidation preferences, things of that nature where people have different rights to distributions in the event that the company is sold or went down or whatnot.

00:34:08:03 – 00:34:35:05
Griffen Thorne
So I mean, there’s just a lot of ways to look at it. But if you’re selling equity in the business, essentially those are the biggest things. I think in my mind is is what level of control does this investor get and what what kind of equity. I would also just say, to add on to that, the savvy investor is going to probably not only look at your governance documents, but want to add things to them, because if I’m buying, I’m giving $1,000,000 for a 15% stake in a business.

00:34:35:07 – 00:34:56:06
Griffen Thorne
I don’t want decisions to be made in a majority. What basis, right. I want the investor. I want to know that my they have to take my vote on things before they can go and buy a Lamborghini for the business right as a company car. So they’re going to insist on minority owner protections and that’s going to be a lot of back and forth and the negotiation side.

00:34:56:09 – 00:35:14:09
Griffen Thorne
So if you’re not open to that, it’s going to make investment much more challenging. And at the end of the day, if you don’t negotiate hard enough with your investors, you might end up where it’s 8515, But the 15% can basically veto any decision, which is also not completely tenable in most businesses.

00:35:14:12 – 00:35:33:00
Vince Sliwoski
Okay. And then I have another state specific question. And you feel this is it’s Washington. It says Washington is still close to ownership by nonresidents. What do you see as the pros and cons of this type of situation? It’s kind of a broad question.

00:35:33:02 – 00:35:34:28
Griffen Thorne
You’re muted.

00:35:35:01 – 00:35:36:03
Vince Sliwoski
Yeah.

00:35:36:05 – 00:35:57:04
Aaron Pelley
Sorry about that. The pros are a policy, really, and because we were one of the first ones, the last states just kind of followed what we did. But the idea is to get as many people that are not in the market that are selling illegally to come and join the legal market with as few competitors as possible from out of state so that we really bring the market up upwards into this recreational market selling there.

00:35:57:11 – 00:36:19:02
Aaron Pelley
So from a policy level, I understand it at least to start with. Obviously the downside to it as it goes forward is being able to do some of the things that Griffen was just talking about, which is to bring in other investors from other states that want to come into this. The Washington State living counties afford doesn’t allow that because they want everybody, whether they’re an investor or an owner, to be a resident.

00:36:19:05 – 00:36:41:11
Aaron Pelley
It’s strange, too, because I honestly never I never really thought I’d be talking about the dormant commerce clause after law school. And that’s kind of what is on point for this, is this isn’t really constitutional at almost every state, but Washington’s high courts have, once they’ve heard this argument of whether we can prevent other people from other states from joining in the industry, they’ve shot this down and said, no, you can’t do that.

00:36:41:11 – 00:37:16:02
Aaron Pelley
That’s unconstitutional. And Washington basically, even recently and I’m going to say in the last month or two, came back again and said, well, we’re not going to be able to apply this because Congress hasn’t exercised their authority to engage in commerce and interstate commerce. And so drama commerce policies apply. So, you know, I’m still I’m still hopeful that that will change in Washington, because I think it does make it a lot harder for the industry to flourish when you when you restrict the residency like this and it’s just no longer necessary, the entire upwards of the entire West Coast is already legalized.

00:37:16:02 – 00:37:31:15
Aaron Pelley
We’re not trying to keep anybody out of the business. Isn’t already in it. I think that the other part of it in terms of restrictions, though, which are different, have to do with kind of like the way that they did licensing and actually each one of the states that we’re all talking from did it a little bit differently.

00:37:31:17 – 00:37:47:29
Aaron Pelley
We had really high restrictions on the amount of licenses that would go out. And I think that I think that in Oregon, they kind of let the free market decide how many licenses and that right for at least a while, like I think you have just as many licenses for retail as we do, but yet we have relations.

00:37:47:29 – 00:38:05:25
Aaron Pelley
So it’s not necessarily it’s been rolling it out and seeing how each state’s done it and watching because I used to think we were the worst. And now it’s like, I see. I don’t know. There’s some stuff we did right. But it’s still it’s a work in progress. And how did California do it in terms of licensing? The number of licenses.

00:38:05:28 – 00:38:25:09
Griffen Thorne
There isn’t the state wide number of licenses. It’s basically uncapped. And the problem is that cities in California are free to make their own restrictions In most cities at this point, they don’t allow it at all. And that’s why you see, I think there’s 1200 or so dispensaries right now. And I just actually had a post on this today, yesterday.

00:38:25:11 – 00:38:47:01
Griffen Thorne
So there’s like 1200 or so dispensary fees and actions last week. There’s I mean, most of them are concentrated in highly populated areas. There’s large parts of the state where we don’t have any anything. There’s been efforts to try to change that. Unfortunately, our law was passed by voter initiative. So that’s not really going to be very fruitful without another voter initiative.

00:38:47:03 – 00:39:09:15
Griffen Thorne
And there’s not really a good fix. I mean, slowly but surely, a lot of cities start to come online, like drag their feet because they think there’s tax money there. But it’s just another way that these businesses in these cities get highly taxed. So California, I think, is pretty, pretty bad job in my opinion. New York seems to be taking the cake on on doing a bad job.

00:39:09:15 – 00:39:12:00
Griffen Thorne
But California.

00:39:12:02 – 00:39:31:20
Aaron Pelley
With the bodegas all the. Well, that’s the other part, too, for an investment, like when you think about investment and you say, well, you know, well, how how who were the winners to start with? And it was like, it was retail all day long. If you’re going to invest in this, then definitely go with retail. It’s the lowest startup costs and and and they make the most money and have the most power.

00:39:31:23 – 00:39:55:05
Aaron Pelley
And then you see what happened in California and New York, the most densely populated, arguably the highest markets. And it looks like retail might be the worst decision to invest more in terms of like what you would want to do because of what’s going on with black market and illicit sales. So I don’t know. It’s it’s sometimes it truly is a state to state kind of analysis for what what a good investment might be and what would.

00:39:55:07 – 00:40:28:11
Griffen Thorne
I still think in my experience, retail tends to be the best, the most highly valued asset in the industry, just because it is where all the money comes in. I mean, certainly like a delivery only type of retail business would maybe not be the best. But when you see M&A transactions, by far the retail is highly, highly valued because, you know, anybody in California can get and I’m going to piss people off by saying this, but look, anybody get distribution right there, they’re essentially dime a dozen.

00:40:28:14 – 00:41:05:01
Griffen Thorne
Some states, some places don’t even cap them. But retail, you might have a city that says we’ll issue two in the entire city and it’s like immensely competitive. Right. And these businesses and then having like a local monopoly provided that all the neighboring cities don’t also have the same, you know, a couple of dispensaries. So I think it’s still I mean, despite all the problems we have here and there are many, which I constantly write about, and that never change, retail still tends to be, I think, the highest value in terms of investment.

00:41:05:03 – 00:41:29:07
Vince Sliwoski
I think so too. And I mean, retail is the one place where you’ve got to say obviously it’s not location dependent, right? Griffen just mentioned like some retailers are, just awesome because they have some sort of exclusivity through like workforce voting or local regulations or others. It’s just because they are where they are right there in high traffic corridors and things like that with producers and wholesalers, processors and distributors.

00:41:29:09 – 00:41:51:13
Vince Sliwoski
But other class like doesn’t matter so much. I mean, it’s not good if they’re like hundreds of miles away and spending all their money on gas to get places and stuff like that. But retail is it’s really like highly, highly location dependent, real estate based. Okay. So we got questions on more specific question, What interest rates have you seen for cannabis dispensary loan script?

00:41:51:13 – 00:41:55:24
Vince Sliwoski
And is there some sort of prevailing rate in California or anything like that?

00:41:55:26 – 00:42:18:15
Griffen Thorne
I mean, it’s going to be, in my experience, higher than what you’d see for other type of commercial loans. Like I said, I’ve seen it as high as in the mid to high thirties in this state, but those are for non, you know, like not term loan situations. Sure. And in term loans I’ve seen it higher, definitely higher than ten which is the max.

00:42:18:18 – 00:42:39:12
Griffen Thorne
But there’s of course a bunch of exceptions to that. It’s called usury. There’s a bunch of exceptions under state law to usury. So one pretty common exception is that loans that are arranged by a real estate broker and that are secured by real estate are exempt from the usury laws. So you might see 16, 18, 20% interest in some cases.

00:42:39:14 – 00:42:51:15
Griffen Thorne
But it’s just going to depend. I mean, at the end of the day, almost without a doubt, you’re going to see rates that that bar exceed similarly situated commercial loans.

00:42:51:18 – 00:43:09:03
Vince Sliwoski
Yeah, same answer. In my experience, what I’ve seen, I mean, we never we never see anything below, say, nine, 10% for a long time since you’ve been scooping up into 12 and 18. And I feel like the longer I’ve done this, it might be just because the market’s depressed rates or terms of loans seem to be shorter nowadays.

00:43:09:06 – 00:43:30:11
Vince Sliwoski
Repayment terms are pretty tight and lenders are almost like underwriting to a specific circumstance or exit event rather than just like, here’s an open type of loan, use a loan for your business. It’s more like I’m going to lend you this money because you’ll do this with it and you’ll pay me back on that date. And they’re kind of tighter windows and more specific, I guess.

00:43:30:16 – 00:43:32:15
Vince Sliwoski
Say you have to make.

00:43:32:21 – 00:43:59:03
Griffen Thorne
Sure that they’re on the loan situation and in the interest rate question specifically to some extent, interest rates. When you see it at the lower end, that’s dictated by the IRS rate. And so there’s the applicable federal rate where if you have a 0% interest on your loan, the IRS is going to impute, excuse me, impute interest at at a certain rate, and there’s mid-term, short term and long term rates, and that changes every month.

00:43:59:11 – 00:44:22:19
Griffen Thorne
They publish on their website. If you Google SFR, you can find today’s rate and it’s there’s a table that’s published each month. If our today is substantial higher than it was in 2020, which was like it was closing in on zero at the end of 2020. I mean I’ve seen it four fractions of a percent, whereas today it’s probably in the 5 to 7% range gets right.

00:44:22:23 – 00:44:44:08
Griffen Thorne
Yeah. It’s, it’s high. So that is also driven up interest because what that means basically is that the lender there spreads the amount. That’s the difference between what they’re borrowing money for their their money and the interest they’re charging. There’s just less room there. So in general, I think you’re seeing interest rates that are higher in just commercial lending.

00:44:44:11 – 00:45:15:22
Griffen Thorne
But in the cannabis space, they’re they’re much higher in interest rates on cannabis loans that we’re seeing back in 20 1819, that would be maybe 12%, 11% or probably 16, 18% today. So that means it’s more expensive to borrow money even. I mean, certainly, you know, a longer term loan, but even on a short term loan and you don’t cut back, don’t forget things like prepayment penalties, those I think, tend to be more aggressive nowadays to all kinds of other stuff like that.

00:45:15:22 – 00:45:19:18
Griffen Thorne
Late fees, you name it.

00:45:19:20 – 00:45:22:23
Vince Sliwoski
Anything to add before I take the next question here?

00:45:22:25 – 00:45:25:26
Aaron Pelley
No, no, no. That’s yeah, that’s pretty much tracks with what I’ve seen.

00:45:25:28 – 00:45:48:14
Vince Sliwoski
Okay. Next question. Are U.S. banks exit the cannabis industry now that there have been more defaults and non payments? Maybe I’ll start by answering that one for me. I mean, just anecdotally, I would say the answer is no and the acceptance data that you can look at since then, which is part of the Treasury Department, actually published the statistics on a regular basis.

00:45:48:14 – 00:46:11:02
Vince Sliwoski
I think it’s worth reading with respect to how many financial institutions are filing something that we call SaaS, indicating that they’re doing some business with cannabis businesses, whether it’s, you know, willingly or they just noticed something and had to flag it because they’re required to flag certain types of transactions. But that number seems to be coming up very short.

00:46:11:02 – 00:46:35:10
Vince Sliwoski
So it seems like there are more and more banks in the space all the time, notwithstanding problems with federal law and the fact that we can never, ever get the SAFE Banking Act passed. But I don’t see banks saying, no, we’re going to exit this industry because we’re seeing a lot of defaults on our loans. And the primary reason for that is most of the banks that are banking in this industry aren’t giving loans to campus businesses, right?

00:46:35:12 – 00:46:58:14
Vince Sliwoski
They’re just giving cannabis businesses basic merchant accounts. They’re giving them checking accounts and they’re not really doing things that you’d see with bank lending and other small businesses like writing equipment, loans and other things. Now, there’s some exceptions that actually set up one of the first credit unions in order to do equipment lending and other things. But that’s kind of an outlying financial institution, for lack of a better word.

00:46:58:14 – 00:47:23:04
Vince Sliwoski
And the underwriting criteria are pretty strict for that kind of stuff. And I think even though the credit unions that were making loans that people might default on have receded in number, that’s just not the sense, not a lot of like prevailing institutional lending to cannabis businesses. It’s more like, yeah, you can have a checking account here and you can pay a pretty good fee to do it to monitor you pretty heavily.

00:47:23:04 – 00:47:35:21
Vince Sliwoski
So I would say that, like banks don’t really care right now about macro environment with cannabis businesses for purposes of lending because they don’t think about lending to them. Do you guys agree with that sort of sentiment?

00:47:35:23 – 00:47:57:16
Aaron Pelley
Yeah, Yeah. I would add actually, banks are really, really traditional. Banks are don’t want to work with even companies that work with cannabis companies. So you’re not going to see any of the traditional Wells Fargo, Bank of America type banks doing any banking business loans or just doing business or letting them have check accounts or anything like that.

00:47:57:16 – 00:48:17:10
Aaron Pelley
You’re going to be almost exclusively in credit unions. And some folks, if you answer the question and by the way, the credit unions like requirements to get into the accounts are just as strenuous as if you were applying for the license itself. But you answer one question wrong and you’re going to be a cash business for the foreseeable future because there’s only so many banks that can do this.

00:48:17:10 – 00:48:19:04
Aaron Pelley
And each day it’s kind.

00:48:19:04 – 00:48:47:27
Griffen Thorne
Of what we see. I think there’s a lot of private lenders and I mean, the closest we see it isn’t even banks, but there’s institutional lenders within the space who do things like receivables financing or equipment leasing. That’s another big one. I don’t think we mentioned up top, which I think of is is it can be structured as alone in some cases, but we’re not I don’t I don’t know that I’ve ever worked on a cannabis loan per se where there was a big bank on the other side of the deal, you just don’t see it.

00:48:47:27 – 00:49:11:06
Griffen Thorne
And so that might conceivably change if there’s rescheduling, probably not as long as it’s illegal federally, which, to be clear, it would still be legal after rescheduling to schedule three. I don’t think the big banks will get into it. And I think maybe equipment, finances or or whatever events it’s set up in Oregon is probably like the most risky.

00:49:11:09 – 00:49:13:22
Griffen Thorne
You’ll see a bank take on a period.

00:49:13:24 – 00:49:29:09
Vince Sliwoski
Yeah. I think the closest thing you’ll see to institutional lending or that we have seen in the cannabis industry over the years is some of these bigger private equity funds. And if you’re like old school and can think all the way back to privateer holdings and stuff, they’ve always been around and they’re kind of kind of like banks.

00:49:29:12 – 00:49:49:22
Vince Sliwoski
I mean, they underwrite things like banks think like banks. And I guess if somebody were to replace the word banks in that question and private equity. Yeah, have seen a bit of a pullback there. Right. I’m not seeing these big venture funds anymore come in from out east or wherever and looking to finance cannabis businesses quick turn and make a profit at a high interest rate.

00:49:49:29 – 00:50:10:20
Vince Sliwoski
We saw a lot of that stuff, even, you know, especially even during the times Aaron mentioned how there was so much money flying around. That stuff’s got my experience. I just haven’t seen that on my deals in the last two years is to see a lot of it. So I think there’s a pullback, an institutional pullback there. It’s just not, you know, federally chartered bank or credit union.

00:50:10:20 – 00:50:37:09
Vince Sliwoski
So we’re talking about it right here. Next question, Are things different with lending to businesses? So we’ve been saying cannabis cannabis the whole time. We’re talking about marijuana there, obviously, and what that term means under the Federal Controlled Substances Act, hemp businesses different. It’s federally legal. GRIFFEN What do you think are things with lending to businesses? Are people lending to hemp businesses?

00:50:37:12 – 00:50:59:21
Griffen Thorne
Sure. I mean, I yes and yes, they’re certainly different. It’s not federally illegal any more. Hemp, I guess dependent. I mean, there’s you can go for hours on the cannabinoid issue and what is and isn’t legal, and we’ll save that for the blog. But I have seen banks bigger banks lend money to companies that that do hemp as part of a business portfolio.

00:50:59:21 – 00:51:29:17
Griffen Thorne
I haven’t I still haven’t seen a big bank lend money to a straight up hemp business. Not to say it hasn’t happened. I just haven’t seen it. Now, is that happening? I mean, I don’t know. Like a lot of hemp businesses right now are suffering. Hemp farming is difficult. I in my experience, a lot of like the CBD companies tend to be very small or tend to be part of a bigger public company that’s doing cannabis marijuana type stuff, too.

00:51:29:17 – 00:51:54:24
Griffen Thorne
I mean, so I imagine. Yes, but it’s like by definition I think we just see more money pouring in on the cannabis side, marijuana side of things. And that’s sort of always how it’s been. But just in terms of things like bank access, yeah, it’s certainly a lot easier today. Banks will still make these hemp companies jump through a million hoops to prove that they’re not doing cannabis on the side or that they’re not doing cannabis at all.

00:51:54:27 – 00:52:12:07
Griffen Thorne
So, you know, Vincent, I think bank portfolios and diligence processes and you know, they still are pretty aggressive with companies, not quite as much as with marijuana. But, you know, that’s that hasn’t changed a whole lot despite federal law.

00:52:12:09 – 00:52:32:18
Vince Sliwoski
Yeah, And it’s not just banks that’ll work with hemp businesses. It’s the federal government, right? I helped hemp businesses get SBA loans back in the day, like in 2019, 2020. It seemed like a lot of people were growing hemp and they were applying to SBA for loans, and that was fine. And the SBA came out with the statement that, yeah, lend to this industry, right?

00:52:32:18 – 00:52:52:24
Vince Sliwoski
They’re just small businesses. They’re federally legal small businesses. And, you know, those businesses were eligible for TPP and sort of everything else that came through the federal government. So I think you have to draw sort of a clean mind in your mind between hemp and marijuana businesses. That artwork, it’s murky in Griffen’s right. We should save it for the blog.

00:52:52:24 – 00:53:26:18
Vince Sliwoski
It’s like, well, are all of these products legal and what kind of hemp business are you talking about? If you’re just talking about a hemp grower, like a good old order license or state license and grower, that’s kind of easy, right? But if you’re talking about somebody who’s making like THC gummies and like processing this stuff and areas where it might be the gray area, people argue about, like whether or not this is federally legal, then, you know, it’s a different analysis altogether and that’s the different lending analysis altogether.

00:53:26:18 – 00:53:45:27
Vince Sliwoski
And last point on that is things change, right? Things things should change if we get a new farm bill later this year, it’s delayed and we should have it already. But we’re hopefully going to get once all the contours around borrowing and lending to hemp businesses and a lot of other things around hemp businesses should become clearer, hopefully.

00:53:45:29 – 00:53:55:12
Vince Sliwoski
But, you know, at a higher level, I think that’s sort of the distinction between lending to marijuana, lending to hemp. Got anything to add on that one? Aaron.

00:53:55:15 – 00:54:12:25
Aaron Pelley
I would. But not only that, don’t be surprised if just if you are have business or Well, to what’s different. But even if you are hemp business, a lot of banks still just say, no, they don’t and they can’t be. And it’s one of the hardest things for people is like, well, I don’t have a right you don’t have a right to a bank.

00:54:12:28 – 00:54:42:03
Aaron Pelley
And so if a bank says, no, I don’t want to do business with you, there’s really no recourse there. It just kind of it sucks forever. I suppose one of the things you can do to benefit yourself is maybe consider what you want your brand to be versus what you want your company name to be. And maybe by making that distinction of not killing yourself, the big green Flower Hemp Company is going to be a lot harder to get a bank account for then, you know, I don’t know Northwest Mutual or something.

00:54:42:03 – 00:54:56:19
Aaron Pelley
I don’t know. Something that’s just benign. So you don’t your brand does not have to be your company name. It’s another distinction for another hour long talk. But I do know that you don’t have a right to a bank and there’s really not much recourse. Or if you get confused.

00:54:56:21 – 00:55:18:25
Vince Sliwoski
Yeah, I’ve had people ask me that. Can you help me sue the bank? I said, No, sorry. Waste your money. Waste your time, Waste your money. Yeah. You don’t have a right to bank account. Anybody, any, any other final thoughts, guys? I don’t see any questions that are unanswered that have come in. Did we miss anything? Do you want to talk about anything else?

00:55:19:01 – 00:55:26:15
Vince Sliwoski
Do you feel good about it? Do you think that, like, things have really changed in cannabis borrowing and investing with the schedule three thing?

00:55:26:18 – 00:55:56:15
Griffen Thorne
Yeah, I certainly think so. I mean, I think like I said at the top, any time you remove an impediment to doing business, it makes money flow much faster. And right now the Federal government has its foot in the door, right? So with to 80 to 80 going away won’t solve all the problems. Right. You still have these states like my state, which has insanely stupid taxes and insanely crazy regulatory burdens.

00:55:56:18 – 00:56:23:04
Griffen Thorne
And we have a new legal market that’s out of control that the state isn’t really doing anything about. And there’s also competition from the cannabinoid market, which again, it’s all other the host of things. And so it years certainly probably the top 2 to 3 culprits. But you know I think that that going away will change quite a bit and it may be the impetus for other changes at the federal level.

00:56:23:04 – 00:56:48:24
Griffen Thorne
I mean, I don’t understand why the current government hasn’t actually passed legislation to the changes except to say that Congress is completely inept and has like an 18% approval rating. So You know, it seems like the easiest win in the world, in the world on both sides of the aisle when like, you know, 90% of people support medical cannabis and 70 supported recreational.

00:56:48:27 – 00:57:08:28
Griffen Thorne
But, you know, nobody apparently in Congress gets the memo. So the more things ease up, the more investors go, okay, I you know, I feel calmer about this. Whereas for the last few years, you know, it’s like the stupid money part went away. Just throwing money at the industry went away, diligence got strong. I’ve had clients walk from deals.

00:57:09:00 – 00:57:31:05
Griffen Thorne
I’ve told clients to far from deals. I’ve had people walk from deals on the other side for my client where that just didn’t happen four years ago. So I’m thinking that, you know, the changes that are coming down the pipe might, might actually be good for the industry, it might be more healthy, but obviously it’s not a complete shift.

00:57:31:07 – 00:57:53:17
Vince Sliwoski
Yeah, and I don’t want to be all doom and gloom even now. I mean, there is cannabis borrowing and lending going on and even in depressed markets and states like Oregon, I still have clients that are making money. I do. I mean, a lot of them have failed over the years and gone away, but some of them have done well, whether it’s like a retailer through some combination of geographic exclusivity and running a business well, but they’ve got margins.

00:57:53:17 – 00:58:15:27
Vince Sliwoski
And, you know, if you’re a lender kind of interested in putting some money into the space, you contact people like us. We have clients that are, I would say, good bets. So it’s kind of it’s business by business. It’s a piece by piece. But I think it’s, you know, opportunities are there today. They’re not like they were a few years ago and opportunities are even better tomorrow.

00:58:16:04 – 00:58:37:06
Vince Sliwoski
And I think that’s especially true given the fact that the macro economy seems to be doing all right. It like in the last two years, everybody said recession, recession, recession, and a lot of private capital is tightening up, not just in the cannabis industry, but just everywhere. I think people are being careful and they’re sitting on cash and they’re doing the kinds of things that you would expect people with money to do when they thought a big recession was coming.

00:58:37:06 – 00:58:55:27
Vince Sliwoski
But it seems like we might be out of the weeds on that in that economy, as far as I can tell. Just seems like maybe it’s kind of gone by that without falling into the abyss. And there are a lot of like factors, constellation of factors, I think, that are good for the cannabis industry, including that one. Anybody else?

00:58:55:27 – 00:59:02:17
Vince Sliwoski
Any final thoughts? Because we’re at 59 minutes and it’s not. Yeah. You got anything here?

00:59:02:20 – 00:59:28:15
Aaron Pelley
No, I’ve got nothing to add. I think this is great. And it is it’s a it’s still a market with a lot of opportunities. And it’s it’s worth taking the time to learn the culture of the industry. I know guys that came from top CEOs of companies that have come in here and done and just didn’t fail because the way this is regulated and dealing with those regulations and the like, I’ve seen guys that grow wheat in their mom’s basement that are that are making $1,000,000 a month and still doing it and really successful.

00:59:28:15 – 00:59:40:08
Aaron Pelley
So it’s not all it’s not all bad. There’s amazing stuff going on, but it is something about like kind of understanding what’s going on in this culture, what’s successful and what isn’t, and just really looking at who’s who’s doing what.

00:59:40:10 – 01:00:01:19
Vince Sliwoski
Excellent. Well, thanks to everybody who came. Thank you for all your questions. Erin and Griffen, always great talking with you guys. We will post this webinar on our YouTube channel and on our blog. And if you’re not subscribed in reading our blog every single day, get there. It’s the channel, our blog. Thanks, everybody for tuning in. We’ll see you all soon.

01:00:01:21 – 01:00:02:28
Griffen Thorne
Thanks, everyone.

01:00:03:00 – 01:00:04:24
Aaron Pelley
Thank you.