U.S. Business Agency SBA Tightens Lending Rules for Marijuana Businesses

The U.S. federal agency, the Small Business Administration (SBA), has tightened its lending rules to prohibit banks from using its loans to finance any marijuana-related businesses, CNBC reported on Monday.

SBA’s sole mission is to give support to entrepreneurs and small businesses through its loans, which are made of banks, credit unions and other lenders who partner with the agency.

CNBC reported that the change was “quietly published in a Policy Notice,” which went into effect on April 3.

SBA rules already prohibit lending to any business directly involved in the marijuana industry. However, the new SBA rule excludes lending to any firm that is even indirectly doing business with a marijuana-related operation, increasing the number of businesses who are now not eligible for the SBA-backed loans.

The rule defines such a business as one that “derived any of its gross revenue for the previous year (or, if a start-up, projects to derive any of its gross revenue for the next year) from sales to Direct Marijuana Businesses of products or services that could reasonably be determined to support the use, growth, enhancement or other development of marijuana.”

While the change might be small but it could have a big impact on the growing legal marijuana industry in the United States. There are already 29 U.S. states that have medical marijuana legalized but they have issues when accessing financial services.

Banks, especially after U.S. federal clampdown on legal marijuana in early January, have shied away from dealing with cannabis businesses, fearing legal consequences.

This has left marijuana businesses dealing with piles of cash as marijuana continues to be illegal on a federal level.

The change in SBA’s policy happened before U.S. President Donald Trump in mid-April promised to allow states to operate their legal marijuana without interference from the federal government following Colorado’s Senator Cory Gardner hold up of nominees for the Department of Justice.

Meanwhile, last week the Republican Gardner said he is partnering up with his Democratic counterpart from Massachusetts to press on Trump to stick to his promise of protecting states’ rights on marijuana.