Seven Regulatory-related Factors for Marijuana Companies to Consider in a Debt Transaction

By Charles Alovisetti

Jan 25, 2021

The following excerpt is from an article published this month by Marijuana Business Daily.

2020 saw several high-profile debt transactions in the cannabis industry, with major companies raising hundreds of millions of dollars through such financings. But like anything in the cannabis industry, getting a debt deal done requires navigating unique regulatory challenges.

Below are seven regulatory considerations that cannabis borrowers and lenders should keep in mind when pursuing a debt transaction.

It’s impossible to provide definitive answers in this article because cannabis regulators in each state (and, sometimes, each locality) approach these issues differently. For simplicity’s sake, I’ll use a hypothetical dispensary in California that’s borrowing money to demonstrate how these issues can play out.

1. Regulatory preapproval or disclosure

A key question for the parties involved in a cannabis debt transaction is whether the loan will require preapproval from regulators.

In California, mandatory preapproval is unusual – though not unheard of, as in a transaction where a lender takes control of a borrower. Preapproval might be required in this scenario, depending on where the lender held licenses. More often, loans must be disclosed when a cannabis business – in this case, our hypothetical dispensary – undergoes its annual license renewal. Other states might not have an explicit requirement to disclose loans to regulators. But attorneys and other practitioners still recommend making a disclosure if the loan was not mentioned on the license application.

While California typically does not require preapproval of a loan, annual license applications must include a disclosure of the loans made to the applicant, as well as:

  • The loan amount.
  • The term.
  • The collateral backing up the loan.
  • The lender’s name and contact information.

Continue reading the article here


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