Banks Are Redlining the 99% Out of the Legal Cannabis Industry

July 24, 2019

Shannon Hattan is the co-founder and CEO of Fiddler’s Greens, a California cannabis tincture maker, and as an entrepreneur she should be feeling great. Her ten-person company, based in Santa Rosa, got one the first adult-use licenses to grow cannabis in the state. Fiddler’s award-winning products are on hundreds of store shelves. The company is quickly approaching profitability.

Instead, Hattan lives every day on edge. She emptied her 401(k) and plowed all of her late parents’ retirement savings into transitioning Fiddler’s Greens, a former medical cannabis collective, into a licensed adult-use company. She and co-founder Cameron Hattan, her husband, work 100-hour weeks without pay.

“We’ve seen a lot people who were really good at what they did get pushed out.”

Shannon Hattan, Co-founder, Fiddler’s Greens

The Hattans need to raise $5-7 million for expansion, but Shannon is too busy complying with onerous state regulations to take meetings with investors. At this stage of the company’s life, a small business loan or line of credit is what makes the most sense for Fiddler’s Greens. But because this is cannabis, bank loans are not an option. If Hattan were to even raise the possibility with her own local branch manager, she might lose her checking account for mentioning cannabis.

Meanwhile, some of her competitors are rolling in money. They don’t have bank loans—they have several hundred million dollars in investment capital to burn. They can afford to take losses for years as they gain market share.

“A ton of the top brands that were winning Emerald Cups and High Times Cups year after year have just fallen off the radar because they weren’t able to walk in and pitch to venture capital firms,” Hattan says. “They were cultivators and medicine makers. They weren’t able to put together a business plan. ”

“We’ve seen a lot people who were really good at what they did get pushed out—and I don’t think we’ve seen the worst of it.”

A pernicious dynamic has emerged in legal cannabis: Costly states regulations, combined with a lack of access to small business bank loans (due to federal prohibition) is de facto redlining all but the richest 1% out of legal cannabis.

If nothing changes, Hattan says, “I think we end up with three or four homogenous [national] brands.”

“The strong will survive,” said Dana Chaves, senior vice president and director of specialty banking services at First National Bank in Florida. First National offers basic banking services (but not loans) to several Florida medical cannabis businesses. Chaves testified during a Congressional hearing before the House Small Business Committee in June. “Those with the most money get the most toys.”

What Was and Is Redlining?

Most folks probably think of redlining as something from the past, but they’re wrong.

In the 1930s, New Deal-era federal bureaucrats rated depressed American neighborhoods for credit-worthiness. They colored the riskiest areas in red on maps. Those red areas were usually inner-city neighborhoods where people of color lived. Over generations, private lenders used those credit maps to deny home and business loans to people of color.

For example, here’s an actual 1936 redlining map of Seattle, produced by the Federal Home Owners’ Loan Corporation, part of University of Richmond’s Mapping Inequality project.

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