Society has had a change in heart about cannabis since its long and drawn out prohibition. Cannabis activists have worked to get the government on board with these changes for the past several decades and just now in 2019; we’re seeing significant progress. According to recent data, over 60% of Americans are in agreement to legalize marijuana. New states are legalizing medical marijuana every day, strengthening the push for decriminalization of marijuana with the end goal of legal recreational marijuana for all. With so much change so fast, a big question lingers: what will the government do with individuals prosecuted for cannabis in the past? Their answer: the social equity program.
What is the Social Equity Program?
The Social Equity Program has long been in the works, and as a result, has been a controversial topic. Those the program was built to benefit have complained that the struggle to get the program off the ground has been more trouble than what it’s worth for them. Some complain that the program’s requirements are confusing, but we are here to demystify it for you. Cannabis finance expert Keith La Masney has followed the program since its inception and has broken it down for us.
The program is currently in Phase 3 and is structured in Los Angeles, CA but is anticipated to hit other cities in the near future. The Social Equity Program is intended to aid victims of The War on Drugs. Tier 1 applicants must own 51% or more of their business and must either be regarded as low income or must have lived in a Disproportionately Impacted Area for a minimum of five years; however, if you do not qualify with your income, criminal record, or residence, there are still ways for you to get approved.
In unique cases where you do not qualify based on the above criteria, you may still be eligible by paying the City of Los Angeles a fee or by dedicating a small portion of your physical property to aid the beneficiaries of the social equity program. Though the Social Equity Program is well-intended to help those negatively affected by the War on Drugs, candidates still expect to face many obstacles once they are licensed.
Help for Cannabis Businesses
Starting a business is no small feat, and coming from a background in cannabis is even more difficult. Social Equity candidates can come from underserved communities and often have credit issues or financial hardship due to being prosecuted for minor offenses related to cannabis that today would not be considered a crime. Keith suggests that aspiring cannabis entrepreneurs do their homework. He says, “Research reputable companies online that can help with credit repair and bring in another family member, friend, or business partner that has a good credit score and can secure a loan or credit line. Running a business isn’t about having a perfect credit score. In fact, business owners often sacrifice their credit scores to get operational, and it pays off for them in the future. Bringing in help here is often crucial from a startup cost perspective.”
Helping cannabis entrepreneurs get past bank’s restrictive options to Cannabis owners is what got Keith interested in space. “As a loan officer, I saw the majority of lending companies discriminating towards the cannabis industry. To help get cannabis entrepreneurs financing, I needed to expand my base of debt investors towards companies who are not afraid of the industry. It’s a fun challenge breaking into a new industry and helping out people who have been trailblazers in the past. It’s a coming together of sorts, previously a finance professional working in an office would never speak to a cannabis operator out in the field. The fact that I, as a loan officer, am speaking to cannabis growers daily is fascinating. This alone is helping to accelerate the process towards cannabis becoming Federally Legal.”
One of Keith's clients, Salt Leaf, saw his passion in play when he helped them to navigate the challenging world of cannabis funding. Salt Leaf was having difficulty being approved for a loan. No bank would grant them financing due to their business being hemp-related and their financials having been unproven thus far. Salt Leaf was set on getting approved for a loan to purchase the latest technology in extraction equipment: An Ethanol Extraction piece that works at -40Degrees Celsius. The Equipment can produce a higher quality product in a shorter amount of time then CO2 extraction would and would be a game-changer for Salt Leaf’s business.
Benjamin of Salt Leaf says, “Banks and other lending institutions are not ready for the cannabis industry, and as such, it becomes increasingly difficult to find lenders that will work with federally legal hemp companies such as Salt Leaf. I tried working with several lenders to obtain funding for our extraction equipment; they were slow to respond and had limited options. Working with Keith, I was able to obtain real quotes from real lenders that aren’t afraid of cannabis and was quickly able to secure a loan for my extraction equipment.”
Becoming Keith’s next success story takes the willingness to move quickly. Keith says, “Moving quickly in business is key. In order for social equity members to “cash in” on this opportunity, they need to move fast. Their experience in the industry is much-needed. Experienced operators regardless of past convictions, can use this opportunity to get the license and maintain ownership/expertise in operations.”
Consult with the Experts
As the cannabis industry booms, Keith urges cannabis professionals to stay savvy. “Equity investors, coming into cannabis, use the hard labor that the cannabis entrepreneurs have done to build a business,” he says. Rather than giving away shares of equity, consider a loan instead. Keith goes on, “I strongly suggest using a partner/family member/friend to secure debt. Debt can be paid back, and you will maintain ownership of the business rather than selling off your hard-earned equity. You should maintain ownership to maximize the opportunity here. Many are scared of debt, but they should really be scared of sharky ‘equity’ investors, in my opinion.”
Always consult an industry professional before major making decisions for your business. Keith and Lender420 are dedicated to helping cannabis entrepreneurs qualify for the best loans possible and are available to answer any questions you may have cannabis business loans. They can help with startup funds, specific equipment financing requests, existing business loans, and commercial real estate loans for the cannabis industry. If you have questions regarding cannabis licensing, be sure to contact your local expert in cannabis law.