In a recent update, the Maryland Cannabis Administration (MCA) has issued new guidelines to help cannabis licensees explore alternative financing options. This guidance aims to provide businesses with various ways to raise capital or engage in partnerships while adhering to Maryland’s regulatory framework. Here’s a breakdown of some key elements from this update:
Using Licenses as Collateral
One major provision allows licensees to use the value of their cannabis license as collateral for loans. This means that if a cannabis business faces financial challenges, it can leverage its license’s value to secure funds from an MCA-registered creditor. In the event of insolvency or default, the license could be sold to an eligible bidder to satisfy the debt, under oversight from a court-appointed receiver. To become a receiver, an individual must meet stringent criteria outlined by the MCA, ensuring they have no conflicts of interest with the cannabis entity or creditor.
Registered Creditors and Receivership
Financial institutions interested in lending to cannabis licensees need to register with the MCA. This registration process is necessary for creditors to secure loans with cannabis licenses as collateral. Additionally, if a business goes into receivership, the approved receiver must submit a detailed plan to the MCA outlining how they will manage the business and eventually dispose of the license. This includes ongoing compliance with Maryland’s laws on licensed cannabis businesses.
Priority Return on Investment
Licensees can structure partnerships or loan agreements that allow investors to receive priority repayment before profits are distributed according to ownership stakes. This structure is especially useful for entities that need substantial capital for operations. The MCA guidelines clarify that priority repayment must be proportional to the initial investment, and once the investor’s capital is recouped, profit-sharing returns to the ownership percentage distribution.
Branding, Partnerships, and Trade Name Use
Maryland’s MCA recognizes the demand for branding and licensing arrangements among cannabis businesses. However, such arrangements are regulated to prevent confusion over ownership or control. For instance, a licensed business cannot operate under the exact name of another licensed entity, but it may indicate a partnership or collaboration. This protects consumers from misconceptions about business affiliations.
These changes aim to support Maryland’s cannabis businesses by expanding their financial options and allowing for partnerships and branding strategies that align with the state’s legal framework. Licensees can benefit from these updates by leveraging new funding avenues and carefully structuring partnerships while ensuring compliance. For further details, licensees should refer to the full MCA guidelines and consult with legal or financial professionals to navigate these complex regulatory areas.
By: Sergio Barraza-Ingstrom
