Cannabis businesses need money – and lots of it – to operate. Being mostly startups, operational profits are not enough to sustain their business. So cannabis businesses take on outside capital generally in one of two ways: taking on debt from cannabis lenders or bringing in equity investors. Due to industry volatility and a crash in the price of flower, many folks who would have otherwise bought into a cannabis company may want to limit risks of owning a potentially troubled company, and lend money instead. But these potential lenders must be aware that California imposes licensing requirements on many types of commercial lenders, including cannabis lenders.
California law requires finance lenders to obtain finance lenders licenses (which I define below). This is a general legal requirement and does not only apply to cannabis lenders. The licenses are issued by the California Department of Financial Protection and Innovation (DFPI). DFPI’s license process is complicated and requires background checking. In other words, it’s not a simple process. And violating these laws can lead to monetary fines or even imprisonment.
A “finance lender” is defined to “include[] any person who is engaged in the business of making consumer loans or making commercial
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