The lack of available financing from conventional lenders (banks and other institutions) for properties with marijuana tenants has created a lending gap that hard money lenders have quickly stepped in to fill. In addition to being unwilling to underwrite any new acquisition loans for commercial properties with marijuana tenants (or directly to the growers or retailers themselves), some banks have also been recalling, or refusing to refinance, existing loans on properties with marijuana tenants (even if the marijuana tenant only accounts for a small portion of the property’s income or occupies only a small percentage of the space).

Property owners who find themselves in need of short-term funds to pay off a recalled bank loan quickly are turning to hard money lenders, who can offer them bridge loans with flexible terms and quick approval timeframes in exchange for higher interest rates. While some banks have given owners the option of evicting any marijuana tenants in order to keep their financing, for many property owners, the profits from leasing to marijuana tenants will cancel out the higher costs of hard money bridge loans until conventional lending catches up with this new industry.

Why are hard money lenders willing to make loans on marijuana-tenanted properties?

Because hard money lenders employ asset-based underwriting practices, they will finance properties that banks consider to be “high risk.” Asset-based underwriting focuses almost solely on the value of the property that secures the loan, rather than the borrower’s financial circumstances. Therefore, the higher rents being paid by marijuana tenants at the present time add value to these properties (though it’s important to keep in mind that this value may be fleeting).

What are the advantages of using a hard money lender to obtain financing for marijuana-tenanted properties?

Since hard money lenders are not overseen by Federal regulatory agencies, they have more flexibility in their lending practices and can choose to invest in profitable real estate deals that may be categorized as higher risk by conventional lenders. Additionally, hard money lenders will often be willing to determine your loan amount based on the appraised value if it is higher than the purchase price or to consider the “as completed” value if you plan to make improvements to the property after purchasing it.

Montegra offers hard money loans against marijuana-tenanted properties that last for one to three years (with renewal options), loan-to-value rates up to 60%, origination fees of 3% to 4%, and interest rates ranging from 12% to 13%. For more information on Montegra’s marijuana-tenanted hard money loans, click here.

Please note: While Montegra offers financing for marijuana-tenanted properties, we are unable to finance loans to borrowers who are directly involved in the marijuana industry.