Businesses seeking to enter the now-legalized recreational marijuana market in New York face challenges in obtaining the capital they need to grow. That’s largely due to the fact that cannabis remains illegal at the federal level. Presently, financial institutions providing banking services to legitimate and licensed cannabis businesses under state laws are subject to criminal prosecution under several federal statutes such as aiding and abetting, and money laundering, in effect locking those business out of the banking system.
As cannabis companies desperately seek the cash they need to expand, they often feel pressured into agreements with terms heavily favoring lenders, often resulting in equity transfers in exchange for capital. This practice is known as predatory lending, and while it may not technically be illegal, it is often viewed as unethical.
Associate William Wolfe of our Syracuse office, a member of our Cannabis Industry Team, explains those dynamics in a recent article published in Law360. Will highlights two recent cases that illustrate the dangers and notes that while it is easier said than done, the best practice for cannabis companies is to make sure they “do their due diligence when seeking funding and refuse any loan terms that seem unreasonable or could potentially result in the forfeiture of their company’s assets upon default.”