Let’s say ABC LLC applied for and was granted permits to grow, process and dispense cannabis pursuant to its state’s medical marijuana regulations. ABC now operates a 120,000-square-foot cultivation facility and sells its cannabis-related products, which include THC and CBD vape oils, tinctures and pills, through three dispensaries. Because, as discussed below, marijuana is federally unlawful, ABC has been unable to obtain a bank account with a commercial bank. ABC’s workarounds to not having the same access to capital and daily banking services hinder its business and raise issues of public safety in ABC’s local communities.
To build its cultivation facility, ABC needed $20 million to finance construction. ABC was unable obtain a traditional construction loan from a commercial bank; prevailing interest rates for such loans were approximately 4.5 percent. ABC was instead forced to privately raise capital. High net worth individuals stepped in and agreed to finance the construction at an 18 percent interest rate, with a portion of the debt convertible to equity upon the achievement of certain licensing and sales milestones. ABC’s founders will lose everything if ABC does not succeed, and their ownership of ABC will be diluted even if it does.
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