With few state loans approved for cannabis microbusinesses, applicants say system too strict

Jan. 3—The New Mexico Finance Authority created a $5 million pilot loan program in April to gauge the needs of the smallest operators in the state's newly regulated recreational cannabis industry.

So far, however, just $80,000 has been disbursed to licensed microbusinesses, in large part because many applicants don't meet the strict criteria to qualify.

They lack the 90% collateral required to secure their loans, said Ryan Decker, a policy and capital strategist with the finance authority.

The agency has approved six loans, all of which are either active or in the closing process, she said, and more money is set to be disbursed in the coming weeks from the program.

The loan program was developed in collaboration with the state Cannabis Control Division, which regulates and administers the state's cannabis industry.

"They reached out," Decker said. "They were thinking a lot about these microbusinesses and concerned that the smallest producers would be impeded out of the market by larger, more resourced production operations."

The Cannabis Control Division authorizes two types of microbusiness licenses, a producer license that allows operators to grow up to 200 mature, flowering plants and an integrated license to run up to three licensed activities at a single facility, such as growing, manufacturing and retailing — also with a 200-plant limit.

Pat Davis, who chaired a 22-member committee that helped create the framework for New Mexico's Cannabis Regulation Act and now heads cannabis consulting firm Weeds, said the plant cap puts microbusiness owners at a steep disadvantage in the market, and the loans are only available to license holders who operate under those limits.

"To take advantage of this loan, you have to cap the size and scope of your business," he said. "We have a system that is incentivizing people with large capital."

Davis added, "The microbusiness is a great lure, but the funding program itself sufferers from underutilization because it constricts operators."

Davis said his group also urged officials at the state Regulation and Licensing Department, which oversees the Cannabis Control Division, to develop navigator and incubator programs for prospective microbusiness owners before issuing licenses "because we saw these businesses would be incredibly complicated and require a lot of business skills and industry knowledge to get going.

"We have to close the gap in our business acumen," Davis said. "New Mexico has done a great job of creating incubator programs for the film industry, and we certainly have them for the tech community."

He commended the Cannabis Control Division for "pulling back the very high bar for applicants to allow more people to get licenses" but said the process doesn't ensure potential operators have the skills, money, knowledge and resources to successfully launch businesses.

"We've all dropped the ball on the navigator program," he said. "No one has ever actually put a dollar into it. We need someone to fund a program like that. Most small operators come to us with $50,000 in the bank, and that's barely enough to get your license or building permits before you even figure out how to operate."

Obtaining a microbusiness loan through the finance authority program is "a hard process, and it's a long process," said Nia Harris, who plans to open an integrated microbusiness in Albuquerque in February. "I funded 90% by myself. I had a small investment from my father, but I'm a doctor. I don't see how anyone without business knowledge could do this. I just don't see how."

Harris said she learned of the loan program while researching ways to fund her business, Herban Oasis Apothecary — a dispensary, manufacturer and grow facility.

"They had sent out an email blast earlier this year," she said. "I called every single month beginning in January, and every single month they kept saying the program wasn't open. Finally, in April, they said it was open. I got my application done that week."

Harris said anyone hoping to open a cannabis microbusiness should expect to make an initial investment of $500,000 to $1 million. To get started, she emptied her 401K and used equity from real estate investments. That wasn't enough.

She was first approved for a $125,000 loan from the New Mexico Finance Authority and increased that amount by another $125,000 to the program's cap of $250,000.

"I'm African American," Harris said. "Socially, for people in our communities, it's really hard to get into this business. Less than 2% of the industry is owned by African Americans and other minority owners.

"As far as investors," she added, "they want your background, a business plan, profit and loss projections. The only way I could get into this business was by having a doctorate degree."

However, Harris said on Thursday she learned the loans are not fully dispersed upon approval.

"We have to make requisitions for everything we need," she said. "Or we can provide receipts, and they will reimburse us. It's been a struggle, but we've been working with it."

So far, her company has received $100,000 of the $250,000 approved loan.

Matt Muñoz, another cannabis microbusiness owner with an integrated license, said he relied on his education and 10 years of experience as a university lobbyist to guide him as he built Carver Family Farm in Albuquerque.

He and his two partners, Andrew and Erika Brown, raised $350,000 to open the business, Muñoz said.

"That was, like, a shoestring budget," he said. "I had to charge things on a credit card to get opened."

They started the process of applying for a $250,000 state loan in August and are now awaiting insurance paperwork to finish the application.

Muñoz said he and his partners are still struggling to gain traction.

"I know they were supposed to create some stamp for us microbusinesses, and that hasn't been done," he said.