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  1. #1
    Just a Member Reputation points: 295 sean bash's Avatar
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    Funding a Medical Marijuana Business

    I don't see this talked about that much anymore. I remember a few years ago, when this was becoming all the rage in California, medical marijuana deals were pouring in for processing and funding. No one knew what the hell to do with them. I got none boarded and none funded. If something is completely legal by State law but positively illegal by Federal law and you knowingly provide capital to a business that is peddling a Schedule I drug as their entire platform, can you set yourself up for some real trouble? I realize that medical marijuana is becoming "lawful" in many states right now but is it worth the risk of getting into a battle with the Federal government?

    This isn't something I know a lot about, but I talked to these guys that actually targeted medical marijuana based businesses for processing 2 years ago: http://www.merchantprocessingresourc...-hash-advance/. It seems their website was never updated since that time though so I don't know how successful they were. What's the latest scoop on funding marijuana dispensers etc.?

  2. #2
    Senior Member Reputation points: 83 CO1's Avatar
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    Working with direct funders is unique. When I worked at some X company they would do stupid things. 1. Example a brothel. Haha. So I don't see why new direct funders wouldn't do it?

  3. #3

    Funding a Medical Marijuana Business

    Just and FYI...Yellowstone is looking at literally every single SIC code...for example...last week we funded a law office and a collection agency

  4. #4
    CEO | Sponsor Reputation points: 170
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    Rapid has funded around 10 medical marijuana establishments over the years. One of the issues is federal taxation - the IRS doesn't allow any deduction for "cost of goods sold" for illegal products. You also have to look at how close the establishment is to a school and what the prevailing enforcement actions are at the federal and state levels to assess your risk.

    Law offices and collection agencies? I wouldn't want to try to collect on those businesses. Stay away from payday lender storefronts also, they are state regulated and can be shut down by the state without notice.

  5. #5
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    MFS Global doesn't have any SIC code restrictions either. We funded a smoking paraphernalia warehouse a couple of months ago and also funded legal doc companies and legal couriers.

  6. #6
    Just a Member Reputation points: 295 sean bash's Avatar
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    Quote Originally Posted by jbrown View Post
    Rapid has funded around 10 medical marijuana establishments over the years. One of the issues is federal taxation - the IRS doesn't allow any deduction for "cost of goods sold" for illegal products. You also have to look at how close the establishment is to a school and what the prevailing enforcement actions are at the federal and state levels to assess your risk.

    Law offices and collection agencies? I wouldn't want to try to collect on those businesses. Stay away from payday lender storefronts also, they are state regulated and can be shut down by the state without notice.
    Thanks for responding to this. So it looks like these deals can be done. With no COGS to deduct, it sounds like a very thin margin business. Do you need to see some sort of license or permit in the underwriting process? How do you verify that it's legitimate or enough to suffice?

  7. #7
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    Living in CO I had a lot of experience with getting some set up for processing. Their are a number of problems.
    1. No bank located in the US will open and account for an MMJ operation. Now, that is not to say that the MMJ can disguise what they are doing, but if the bank gets wind of it, they will shut it down. Because banks are federally insured, any boarded of an MMJ facility puts that bank in jeoporady of losing its insurance.

    There are also huge laundering issues with this. Because funds are crossing state lines. I opened a few MA but V/MC shut them down a few months later.

    I also put in a few cashless ATM's there.

  8. #8
    Just a Member Reputation points: 295 sean bash's Avatar
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    Quote Originally Posted by skideeppow View Post
    Living in CO I had a lot of experience with getting some set up for processing. Their are a number of problems.
    1. No bank located in the US will open and account for an MMJ operation. Now, that is not to say that the MMJ can disguise what they are doing, but if the bank gets wind of it, they will shut it down. Because banks are federally insured, any boarded of an MMJ facility puts that bank in jeoporady of losing its insurance.

    There are also huge laundering issues with this. Because funds are crossing state lines. I opened a few MA but V/MC shut them down a few months later.

    I also put in a few cashless ATM's there.
    This is the kind of response I expected to hear. Sounds like this industry is really not worth getting involved in financially.

  9. #9
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    The biggest problem has been already discussed and that is the federal government stepping in and shutting down their merchant and bank accounts. I have heard many stories of this happening over the years. I've even heard the federal government stepping in and essentially pressing their landlords to evict the businesses. I believe that was in a national news article a few years back, but cannot remember 100%.

    Either way, a funder would need to either be very short term with these deals or realize they are opening themselves up to the possibility of the business getting shut down (or simply incapable of being collected upon). This is before even thinking about whether or not the funder themselves could get into trouble. I would imagine if any funder consulted their legal counsel they would advise against it. After all, if a funding company is "buying the future receivables" of a medical marijuana business, then aren't they pretty much selling drugs?

    Also, if your a medical marijuana dispensary and need a cash advance, I think you need to look at how much of your own inventory you are cutting into

  10. #10
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    TBB approved one for us last year. Merchant decided to not move forward though.

    We would fund one in house if there is no history of enforcement against it, very favorable landlord reference, and a minimum of 3 years in biz. 5-6 months tops.

    I totally agree about the above points adding layers of risk but on the flip side I would prefer to fund one in decent financial shape with favorable history than a run down banged up restaurant loaded with nsf's and other signs of distress. It's at least a little ironic that that same restaurant would get approved by everyone.

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