“You’re Not Selling the Dream—You’re Selling Repayment”: How Cannabis Lenders Evaluate Borrowers

Even though a spark of optimism has reappeared in the cannabis space with the latest reform efforts, lending in the industry is still grounded in the same fundamentals. That’s according to speakers on a panel moderated by Sahar Ayinehsazian, partner at A.Y. Strauss, at the IgniteIt Cannabis Capital Conference in Chicago in June.

The U.S. Department of Justice’s (DOJ) cannabis rescheduling has prompted acquisition activity, the experts agreed. However, it has not fundamentally changed how lenders evaluate borrowers, they added.

The focus of a discussion between Ayinehsazian, Joe Lustberg, CEO of Upwise Capital, Anthony Coniglio, CEO of Newlake Capital, Frank Segall, partner at Blank Rome, and Rachel Wright, founder at Verdant Strategies, was on what is it that makes a cannabis company lendable in this market.

Verdant Strategies’ Wright says everything begins with preparation.

“Your financials need to be straight,” she said, adding that operators should pay attention to tax obligations, making sure they are current and maintaining a clean, organized data room before seeking financing. “Be ready with your data room before you need a loan or an investor.”

Upwise Capital’s Lustberg agrees. He explained that lenders want borrowers who can repay debt.

“We’re looking for good borrowers that can service the debt,” he said, adding that there’s a way for companies that are not yet profitable to still have financing options, provided they have a capable management team and solid financial documentation.

Blank Rome’s Segall urged operators to “have your shit together.”

For every business, credibility is essential, he said, adding that companies should disclose any litigation or regulatory issues upfront.

“If you’re not upfront about it… “It doesn’t matter how bankable you are, you’re not going to get the deal done,” Segall said.

Choosing The Right Lender

Panelists said operators should evaluate lenders just as carefully as lenders evaluate operators. Relationships and communication are priorities, especially when challenges arise, Lustberg said. “God forbid something does go bad… You want to be able to have a good relationship with your lender and be able to work through those issues together.”

Segall stressed that understanding how lenders behave when loans become distressed is vital.

NewLake Capital Partners’ Coniglio said operators should know that raising equity and securing debt require different approaches.

“You’re not selling them on the hope and the dream of some 5x equity return,” Coniglio explained. “You need to sell them on the ability to repay them.”

Verdant Strategies’ Wright said she treats lenders as long-term partners, paying close attention to their motives and flexibility.

“I actually do interview the lenders,” she said, explaining that she looks for lenders who will stick with borrowers through regulatory delays and market challenges instead of trying to take control of valuable licenses.

Rescheduling Prompts Optimism, But Not Immediate Change

Speaking of the DOJ’s cannabis rescheduling order, Wright said it has resulted in far more acquisition activity.

“People are more acquisitive. They’re looking for the targets now,” she said, adding that operators should consider an exit to prepare their businesses for sale.

According to Lutsberg, institutional capital is increasingly showing interest. This could gradually reduce borrowing costs for qualified operators, but for now, most lenders are operating the same way they were before the announcement.

Segall said the industry is still waiting to see what happens. “Will it change the landscape? Yes. Has it changed it? No.”

Coniglio sided with Segall, saying operators shouldn’t expect financing to get easier anytime soon.

“You should really expect that the landscape… remains the same for the next six to 12 months,” he said.

As capital markets continue to evolve, understanding credit underwriting, capital structure, debt financing, covenant design, sale-leasebacks, working capital management, trade credit, lender due diligence, and institutional capital is becoming essential for every cannabis executive. Join us at IgniteIt’s Colorado Market Spotlight in Denver on September 18, where leading lenders, investors, operators, and financial advisors will discuss the financing strategies shaping the industry’s next phase of growth. Whether you’re raising capital, refinancing debt, evaluating acquisitions, or preparing for federal reform, Denver will bring together the experts driving the conversation.