It may be obvious that a bong manufacturing business that caters directly to the trade should also be ineligible for government financing, but consider a garden supply company that sells bagged dirt, hydroponic equipment, potting supplies, fertilizer, or grow lights primarily to garden and home centers, but received even one purchase order from a local marijuana business. Is it now ineligible since its products could be used to help grow the product?
Similarly, consider companies like contractors, architects, or engineers that help build a grow facility, or online marketing and website development services that help market a retail marijuana business.
These businesses are providing a service that can be viewed as helping the marijuana business grow, and if their products and services are publicly available in a market that has legalized marijuana, it is very likely that they have some revenues that come from direct marijuana businesses.
This notice comes at a time when some private equity and individual investors have made bets on the so-called "picks and shovels" trade. This play involves investing in the suppliers to the industry as a way of gaining the benefit of the growth of legal weed while avoiding the risks associated with the fact that marijuana is still illegal on a national basis.
The SBA notice also bans lending to any business growing, producing, processing, distributing or selling hemp products unless the business can demonstrate that its business and products are legal under federal and state law.
The stricter rules come as the Trump administration's Justice Department seeks to make life hard for the marijuana trade even as public support for it grows — a recent Gallup poll finds 64 percent of Americans favor federal legalization, including a majority of Republicans.
Banks offering SBA-backed loans will now have to require borrowers to attest that they are not engaging directly in the marijuana trade, and that they do not derive any revenue from the marijuana industry to be clearly eligible. But SBA recommends that banks also complete additional due diligence including website reviews to investigate how these firms market themselves and to review accounts receivable reports for red flags.