Friends, we don’t talk much in these Cannabis Musings about social equity in cannabis. There’s no great reason for that beyond my generally not feeling adequately equipped deconstruct the problem, which is barely an excuse. Recently, however, I had an idea on the topic that falls more within my domain.
The federal government has a number of loan guarantee programs to stimulate borrowing, through government and quasi-government agencies like the Small Business Administration, the Federal National Mortgage Association (or Fannie Mae, which is short for FNMA), the USDA’s Farm Service Agency, and the Department of Education. As we’ve discussed many times before (most recently here), capital is still really hard to come by for most cannabis industry participants, particularly for startups and smaller companies.
So, I thought, why don’t states that want to promote startups work with credit unions and other lenders to issue state-guaranteed, low interest rate loans, with a particular focus on social equity owners within traditionally marginalized communities, where it appears the capital need is great? As opposed to outright grants (which are great but limited to how much a city or state is able to allocate (link)), I would imagine that guarantees could back many more loans at once (because, in theory, not every loan will default). Although there would need to be some interest rate (for tax purposes, to avoid imputed interest), that payment could even capitalize (or, if you want to sound like an investment banker, “PIK”, meaning “pay-in-kind”, meaning the interest gets added to the principal), freeing up even more cash for the startup. Startups would get the capital they (usually) very much need, lenders would get additional business and fees, and governments would get the policy outcome they proclaim.
I thought this was a pretty nifty idea. Then I searched it up, and found that my novel idea isn’t totally novel. Illinois has a Social Equity Cannabis Loan Program (link), which is great, but the state is acting as a lender and the capital comes from a state fund. (link) I admit that my search skills may need refining, but I didn’t find anything else of the sort.
It seems to me that an enterprising state cannabis agency and an enterprising lender could make this happen. It works in plenty of other sectors, so why couldn’t it work for cannabis as well?