Access to capital can be one of the biggest hurdles for anyone starting a new business.
Bank loans and federal small-business grants often fill that void and allow entrepreneurs to achieve their dream of ownership. However, those sources of capital are not open to individuals starting cannabis businesses, due to the federal prohibitions on cannabis.
Many cannabis business owners mortgage their homes or borrow from friends or family to fund their start-up costs. But for those from some of Sacramento’s poorer neighborhoods, where historic inequalities have prevented home ownership and generational wealth transfer, the option to tap into home equity or borrow from relatives is rare.
But a new loan source is on the way. The City of Sacramento on April 21 was awarded $3.8 million in state grant funding to increase social equity in its local cannabis industry, and the City plans to use the money to provide no-interest loans to qualified applicants for cannabis business start-up costs.
“We’re honored and excited to be chosen as a major recipient of this grant funding,” said Davina Smith, head of the City’s Office of Cannabis Management. “This money will help correct some of the historic inequities present in the legal cannabis industry by creating a pathway for business ownership by social equity members.”
Sacramento’s funding is part of an overall $30 million in grants issued by the Governor’s Office of Business and Economic Development (GO-Biz), in partnership with the Bureau of Cannabis Control. Other cities awarded funding through the state’s “Cannabis Equity Grants Program for Local Jurisdictions” include San Francisco, Oakland, Los Angeles and Long Beach.
Sacramento’s $3.8 million will be used to provide no-interest loans to participants in the City’s Cannabis Opportunity Reinvestment and Equity (CORE) program, which assists individuals who were negatively affected by the disproportionate enforcement of cannabis-related crimes.
Smith said the loans would be considered “revolving,” meaning money could be loaned to one individual, and once it’s paid back, it could be loaned out again to assist someone else. “That way we can use the grant funds to help a larger group of people access the capital they need for their business start-up costs,” she said.
Established in 2018, the CORE program is designed to reduce the barriers of entry into the local cannabis industry through training, mentoring, financial and technical support and other assistance. It is administered by the Sacramento Asian-Pacific Chamber of Commerce (SACC) and the Greater Sacramento Urban League (GSUL).
Smith said the no-interest loans would be used for items including capital investments, assistance with securing business locations and payment of costs related to regulatory compliance.
The loan fund builds upon a business-expense reimbursement program the City’s Office of Cannabis Management launched in February. Benefiting people who are either CORE participants or CORE eligible, the program offers up to $25,000 in reimbursement for certain costs related to starting a cannabis business.
While some businesses have temporarily shut down during the COVID-19 outbreak, the cannabis industry continues to operate, having been deemed “essential” by the State and County’s “stay-at-home” public-health orders.
Nevertheless, “this new loan funding couldn’t have come at a better time,” Smith said. “The pandemic has created economic conditions that are challenging for everyone. This grant money will make a significant difference for many people looking to start a cannabis business in Sacramento.”
Those interested in applying for a loan should keep their eye on the City’s CORE website, Smith said. Next steps involve the City formally accepting the state funds via Council resolution, which is expected to occur in the coming weeks, as well as looking to partner with a loan underwriting and service company.