Guaranteeing the First Loan: A State Loan-Loss Reserve, a Farmer-Owned Marketplace, and the Test Case New York Needs
Executive Summary
New York licensed hundreds of small outdoor cannabis farmers. The market now squeezes them out. Sun-grown biomass sells as a commodity each Croptober. Each farm negotiates alone. Bulk harvests sit on farms with limited buyers or working capital. Banks will not lend into the gap. The state's one capital program, the Dormitory Authority of the State of New York ("DASNY") Social Equity Investment Fund, failed on its own terms.
We propose a fix in two parts. First, the state should fund a loan-loss reserve with cannabis revenue the State Finance Law already directs toward equity assistance. The reserve covers a first-loss slice of loans New York banks and credit unions make to Marihuana Regulation and Taxation Act ("MRTA") priority borrowers. New York runs this mechanism today for small business and clean energy. Second, we propose a test case: one guaranteed loan to Certified Sun Grown Collective ("CSGC"), a farmer-governed cooperative aggregator. CSGC wholesales members' biomass through one marketplace, removes the crop from the farm, and returns the margin to the farmers. One of its core strategies is to connect licenses with distressed farms, a priority group the MRTA names and defines. We argue the Cannabis Law permits this program as written. We show why the last state program failed and how this design avoids its mistakes. We close with the banking regulatory analysis that frames any lender's participation.
The problem: the market is squeezing out outdoor cultivation
In New York, incumbent large-scale multistate operator ("MSO") indoor cultivation and processors set the market's terms. The single harvest season creates a temporary surplus of cannabis biomass. Each farmer negotiates alone, with no shared system for pricing or differentiation. The result hits every fall. A farmer harvests and cures a crop, then holds it. The biomass sits on the farm. It ties up a year of income, loses value, and creates cash flow, operating, compliance, and security burdens. The farmer spends the winter cold-calling processors one pound at a time or selling bulk at a discount.
The economics fail at the level of the license itself. 100,000 square feet of outdoor canopy, the New York regulatory limit, is insufficient to support all the processing, packaging, marketing, sales, administrative, and compliance costs necessary to bring a branded product to market successfully in the competitive NY landscape. The statute caps each farm's revenue base below the cost of running a standalone brand. Every licensed outdoor farm therefore faces the same choice: carry overhead it cannot support, or sell into the commodity market at whatever price a buyer names. Aggregation is not a preference. The economics require it.
The Office of Cannabis Management's ("OCM") licensing data shows the scale, and its limits. The August 24, 2026 export lists 318 active adult-use cultivator licenses. Of those, 136 hold outdoor tiers and 50 hold combination tiers that include outdoor canopy. Yet the dataset's outdoor-activity flag marks only 118 of them, 21 outdoor-tier licenses carry no outdoor flag, and 27 active cultivators carry no cultivation-type flag at all. Another 425 active microbusiness licenses can also cultivate, and 75 of those carry the outdoor flag. Read one way, 118 active licenses grow outdoors. Read another, more than 250 authorize it. The inconsistencies make an exact count impossible, which itself tells the story: the state cannot say precisely how many outdoor farms or how much total canopy it has, and no lender can size this market from public data alone (OCM license data export, Aug. 24, 2026).
Two more pressures compound the squeeze. The first is inversion: illicit cannabis entering the regulated supply chain, much of it from oversupplied western markets. Former OCM Chief Equity Officer, Damian Fagon, wrote in October 2025 that California's "licensed oversupply spilled into New York's legal and illegal storefronts" and that "[l]icensed farmers sit on unsold compliant harvests while inversion fills our dispensary shelves" (Marijuana Moment op-ed, Oct. 8, 2025). OCM knows the problem exists. Its scale is unknowable, because inverted product hides inside legal inventory as the New York METRC, seed-to-sale tracking system rollout (finally launched in December 2025) struggles to catch up (NY State of Politics, Dec. 12, 2025). The legislature responded in June 2026 with the Cannabis Supply Chain Integrity and Anti-Inversion Act, the first state law to name and penalize inversion, with fines up to $10,000 per day and product seizure (GreenState, June 2026). Every inverted pound displaces a pound from a New York farm. The second pressure is scale competition from the medical incumbents. The license export lists 19 active Registered Organization licenses held by multistate operators including Curaleaf, Columbia Care, PharmaCann, and Vireo (OCM license data export, Aug. 24, 2026). These vertically integrated companies operate large indoor grows and sell through their own dispensaries, an exemption from the two-tier separation that binds everyone else. The small outdoor farm competes against untaxed illicit supply on one side and vertically integrated indoor operators with the resources and strategy to sell as a loss leader on the other.
The squeeze is also largely a capital problem. A farmer who cannot borrow while a harvest waits cannot hold out for a fair price. A farmer who cannot finance a season cannot plant one. The Social and Economic Equity ("SEE") Plan admits that most financial institutions will not lend to cannabis businesses (NY SEE Plan). The MRTA's priority licensees, including SEE and distressed farmers, hold the least collateral and the thinnest reserves.
The solution: an aggregator, and a reserve that finances it
The market answer is aggregation. CSGC pools member farms' biomass into one wholesale marketplace. It sells at collective scale to licensed processors. It removes the crop from the farm and into the sales channel, so the farmer can focus on cultivation. One platform handles compliance, tracking, listing, sale, and receivables for every member. The farmers govern the aggregator and share its residual economics, so the broker's margin stays with the farms. The certification program adds the differentiation a commodity market denies them. Its top tier ties cannabis to food production for communities disproportionately impacted by prohibition.
The cost accounting drives the market. Outdoor cultivation wins on economics for every product except high-end loose flower. Extractions, derivatives, pre-rolls, and value flower all belong outdoors. An outdoor canopy costs $15 to $50 per square foot to build, against $500 to $1,000 per square foot for indoor. Outdoor flower comes off the field at $50 to $200 per pound, against $300 to $1,000 indoor (authors' operating figures). The advantage holds on one condition: selling, general and administrative ("SG&A") costs stay off the farm. Processing and packaging must happen at aggregated scale, or overhead eats the margin the sun provides. That condition is CSGC's design. The cooperative aggregator keeps on-farm costs low, bargains collectively, preserves genetics and practice, and provides education, assurance and certification to the consumer.
Adding to the low cost advantage of outdoor cultivation, emerging data support the quality and sustainability claim of as well. A 2023 Columbia University study compared genetically identical clones grown indoors under artificial light against the same genetics grown outdoors in living soil under sunlight. The sun-grown samples carried more terpenes, a greater share of sesquiterpenes such as beta-caryophyllene and alpha-humulene, significantly more unusual minor cannabinoids, and significantly fewer oxidized and degraded cannabinoids than their indoor twins (Zandkarimi et al., Molecules 2023). In terms of sustainability, it is not even close. Mills's 2025 life-cycle assessment in One Earth puts US cannabis industry emissions at roughly 44 million tonnes of carbon dioxide equivalent ("CO2e") per year, about 1 percent of national emissions, with indoor plant factories emitting roughly 4,500 kg of CO2e per kilogram of flower against roughly 700 for open-field cultivation, and finds that shifting cultivation outdoors could cut industry emissions by up to 76 percent (Mills, One Earth 2025). Mills and Zeramby stated the conclusion plainly in 2020: outdoor cultivation "is the most technologically elegant, sustainable, ethical, and economically viable approach" to cannabis production (Mills & Zeramby, 2020).
The finance answer is a loan-loss reserve supported by the State. The aggregator needs modest startup capital that no bank will lend today. The farmers behind it need seasonal credit next. A state reserve that absorbs first losses unlocks both. It costs a fraction of direct state lending. The state already holds the legal authority and the operating playbook.
Background: the state promised this and never designed it
The SEE Plan states that most financial institutions "are unwilling or unable to assume the risks" of cannabis lending. It commits that "the Office is drafting proposals for underwriting loans for qualified NYSEE applicants" (NY SEE Plan). The 2024 Chief Equity Officer ("CEO") Annual Report carries the heading "Underwrite Default and Loan Loss Risks for Commercial Lenders" (OCM 2024 CEO Report, pp. 26, 39). The reports contain no design: no funded reserve, no first-loss percentage, no eligible-lender standard, no claims process. The 2025 report adds only that the Cannabis Banking Directory launched in February 2025 with 20 institutions (OCM 2025 CEO Report; OCM release).
We propose a reserve with eligibility drawn from the MRTA itself: SEE applicants and licensees and the Cannabis Law § 87 priority groups. Section 87(2) names the categories: individuals from communities disproportionately impacted by the enforcement of cannabis prohibition, minority-owned businesses, women-owned businesses, minority and women-owned businesses, distressed farmers, and service-disabled veterans (Cannabis Law § 87). Section 87(5) defines each category. A distressed farmer takes one of two statutory paths: a New York small farm operator that has filed farm tax schedules for three years, qualifies for an agricultural assessment, and has been disproportionately impacted by low commodity prices and the threatened loss of farmland; or a small farm operator who belongs to a group historically underrepresented in farm ownership (§ 87(5)(e)). The regulations add a structural test for SEE status: individuals from a qualifying category must own at least fifty-one percent of the applicant and hold sole control, documented under Part 121 of Title 9 of the New York Codes, Rules and Regulations ("9 NYCRR") (9 NYCRR § 118.1; 9 NYCRR § 121.1).
The Cannabis Law case: an outline
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Purpose. The findings commit the state to "strengthen New York's agriculture sector" and invest in "communities and people most impacted by cannabis criminalization" (Cannabis Law § 2).
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People. Section 87(2) sets a goal of fifty percent of licenses for SEE applicants and names the priority groups, each defined in § 87(5) (Cannabis Law § 87).
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Market structure. The statute builds a market of small operators through the microbusiness license, the cooperative license, and the two-tier system (Cannabis Law § 70). Small operators cannot survive it without capital access.
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Support infrastructure. Section 87(4) directs the board to create an incubator program with "financial planning" and "compliance assistance" for SEE licensees (Cannabis Law § 87).
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Loan authority. The Urban Development Corporation ("UDC") Act § 16-ee authorizes the UDC, on the Board's recommendation, to make "low interest or zero-interest loans to qualified social and economic equity applicants" (UDC Act § 16-ee). Section 87(7) refers to "repayment of any loan issued by the board." The clause presumes the board can issue loans (Cannabis Law § 87).
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Money. Adult-use taxes flow into the Cannabis Revenue Fund. Its first call includes program administration, incubators, and SEE assistance before the 40/40/20 split (State Finance Law § 99-ii; OCM Taxation Fact Sheet).
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Community nexus. Every licensee must maintain a Community Impact Plan ("CIP") for communities disproportionately impacted (9 NYCRR § 121.4). The test case's food distribution serves that obligation (Community Impact Plan memorandum).
The Cannabis Law permits this program as written
The authority sits in the State Finance Law. Section 99-ii pays the costs OCM, the Board, and the urban development corporation incur for "the administration of incubators and other assistance to qualified social and economic equity applicants." The clause expressly includes "low and zero interest loans" made pursuant to § 16-ee of the urban development corporation act (State Finance Law § 99-ii; UDC Act § 16-ee). The legislature named the agencies and the beneficiaries. It authorized direct state lending at zero interest. It left the category open with "other assistance."
The Cannabis Law matches. Section 10(14) empowers the Board to advise OCM and the urban development corporation "in making low interest or zero-interest loans to qualified social and economic equity applicants as provided for in this chapter" (Cannabis Law § 10). That subdivision only makes sense if the chapter contemplates those loans. Section 10(13) lets the Board enter program agreements with lenders. Section 87(4) mandates the incubator. Section 87(7) assumes the Board holds loans (Cannabis Law § 87).
The argument runs from broad powers granted in the Cannabis Law to more the discrete and restricted application proposed here. The statute lets the state lend directly at zero interest and bear all the risk. A reserve that covers only first losses on a private lender's loan is the lesser power. It fits within "other assistance." The state has read § 99-ii aggressively before: the same section's $50 million private-fund clause capitalized the Social Equity Investment Fund (State Finance Law § 99-ii). The statute also names the urban development corporation, which runs New York's Capital Access Program ("CAP"). A cannabis CAP funded with cannabis revenue joins two existing schemes.
The New York Constitution favors a funded reserve over a guarantee. Article VII, § 8(1) bars the state from giving or loaning its money to private undertakings and from giving or loaning its credit to anyone (N.Y. Const. art. VII, § 8). A guarantee pledges the state's credit. A funded reserve appropriates and spends a capped sum instead, and the case law sustains that path. The Court of Appeals upheld over $1 billion in economic development appropriations benefiting private corporations because they served a predominant public purpose, and held that money passed through public benefit corporations such as the urban development corporation falls outside § 8(1) entirely (Bordeleau v. State, 18 N.Y.3d 305 (2011)). The court has also held that the state may give money to a public authority, and commit to future gifts, even though it cannot lend its credit (Schulz v. State, 84 N.Y.2d 231 (1994)). Courts apply an exceedingly strong presumption of constitutionality and defer to public funding programs unless patently illegal; the Third Department recently sustained a $600 million appropriation through the urban development corporation for a stadium on that standard (Matter of Schulz v. State, 216 A.D.3d 21 (3d Dep't 2023)). Routing the reserve through the urban development corporation, as § 99-ii and § 16-ee already contemplate, follows the pattern these cases approved. Both lead cases stand as good law on an August 2026 Shepard's check. Conjecture: no court has applied § 8(1) to a cannabis lending program, so this reading is the authors' position.
The argument has three limits. First, the statutory words run to SEE applicants, and CSGC is not one. The regulations compel that concession: a SEE applicant must be an applicant for an adult-use license (9 NYCRR § 118.1(a)(99)), and CSGC seeks none. The bridge is the "administration of incubators and other assistance" clause: a platform that delivers compliance, market access, and financial services to SEE farmers administers assistance to them, just as an incubator's operator need not hold SEE status. That is the most contestable step. Second, statutory authority is not an appropriation. Third, the law allows the program but does not require it. The following discussion tests all three points.
The test case: Certified Sun Grown Collective – Northeast Region, LLC
Three things CSGC is not: it holds no OCM license, it is not a § 70 cooperative licensee, and it is not a SEE applicant or licensee. It is a management services contractor serving licensed cultivators. It operates as a manager-managed New York limited liability company ("LLC") organized as a multistakeholder cooperative on the seven cooperative principles (CSGC Operating Agreement). The equity characteristics sit at the member level. The farmer members hold their own licenses, and recruitment focuses on small and distressed farmers. One of CSGC's core strategies is to connect license holders with distressed farms and facilitate placing licensed cultivation on those farms, using the Cannabis Law's own definition of a distressed farmer (Cannabis Law § 87). The statute names distressed farmers as a § 87(2) priority group. Every license CSGC helps place on a distressed farm puts a named statutory beneficiary in business, so the reserve's benefit lands on the class the legislature wrote into the law.
CSGC has three co-founders. Brian Farmer, CSGC's Executive Director, served as OCM's Deputy Chief of Compliance and then in the Chief Equity Office under Damian Fagon before leaving the agency in January 2026. He now advises Ulster County on a local farmer initiative. He is also a Hudson Valley farmer, agricultural consultant, and farm certifier who co-owns Farmer's Table Farm in Tillson and founded the Rail Trail Cafe, a farm-sourced cafe on the Wallkill Valley Rail Trail (Hudson Valley One; LinkedIn). Tavian Crosland, CSGC's Director of Outreach, is a Brooklyn cannabis consultant and advocate with more than twenty years in the legacy market. He founded the New York chapter of the Social Equity Empowerment Network, co-founded the Restorative Justice Cooperative, and is a mentee in OCM's Cannabis Compliance Training and Mentorship Program (NY Cannabis Insider; The Nation; LinkedIn). Suehiko Ono, an author of this paper, is the third co-founder. His background appears in About the Authors. The team mirrors the design: a farmer and certifier who ran compliance at the regulator, a legacy-market advocate connected to the communities the MRTA names, and counsel who founded and operated a licensed cannabis cultivator.
Ownership and control. Four unit classes share one company: founder units, cash-investor units, employee/service-provider profits interests, and farmer units issued one per farmer under a Farmer Services Contract. Every natural person holds one vote regardless of class or capital. The members can block debt, liens, or guarantees outside an approved budget. Distributions pay investor and founder priorities first. The residual splits between the capital-side classes and the farmers in proportion to each farm's crop volume (CSGC Operating Agreement). CSGC earns a commission on brokered sales and a royalty on certified branded products. The Farmer Services Contracts stay below the True Party of Interest ("TPI") thresholds in 9 NYCRR §§ 118.1, 124.3 and 124.4 (CSGC TPI Issues deck). The top certification tier requires food production and food distribution to at-risk communities, which serves each licensee's Community Impact Plan (Guild Attestation; CIP memorandum).
The loan. The loan goes to CSGC itself. The company is pre-revenue. The proceeds launch the platform, cover platform subscription fees, and fund the first employees. No bank today would write this loan on its own paper. That is the test: if a reserve makes this loan bankable, it makes the harder ones bankable too. A second phase could extend guaranteed crop-cycle lending to the farmers directly, with CSGC as servicer. A services-company borrower is also the cleaner first test. Banks cannot take a cannabis license or the cannabis itself as collateral, so a licensee borrower offers a lender little security. CSGC never asks for either, and the TPI complications of licensee lending fall away (Investment Summary; Subscription Agreement).
New York already runs loan-loss programs, just not for cannabis
Empire State Development ("ESD") Capital Access Program. The borrower and lender contribute 3 to 7 percent of each enrolled loan into a reserve account at the lender, and ESD matches the contribution up to 7 percent of principal. The mechanics reward precision. The program serves New York small businesses with one hundred or fewer employees that find it "difficult to obtain regular or sufficient bank financing," for term loans or lines of credit up to $500,000 that fund expansion, upgrades, startup, or working capital. The lender submits each loan to ESD for pre-approval before funding, closes within 90 days, and enrolls the closed loan within 10 days. The borrower pays no more than half the premium. The reserve serves the lender's whole enrolled portfolio, the lender can file multiple claims on one loan up to its full principal, and the lender may withdraw any remaining balance after all enrolled loans repay. Eligible lenders include banks, savings institutions, and community lenders such as CDFIs (ESD CAP; CAP Overview). The design point for our proposal: the state never meets the borrower. Its role begins and ends at the match. A cannabis version changes only two inputs: state-source dollars and cannabis-eligible borrowers.
NYC Capital Access Loan Guaranty Program. The New York City Economic Development Corporation ("NYCEDC") guarantees up to 40 percent of loans to qualified micro and small businesses. The city defines micro-businesses as twenty or fewer employees and small businesses as twenty-one to one hundred. Covered loans fund working capital, tenant improvements, equipment, and refinancing. NYCEDC does not lend and does not set rates; it oversees a network of participating lenders, and each borrower negotiates terms with its lender (NYC program). The instrument differs from CAP in kind, not degree. A guarantee is a promise to pay after default, not cash on deposit, so it offers deeper coverage on a single loan but asks the lender to trust a future payment. We propose the funded reserve instead for two reasons. Cannabis lenders already discount promises attached to a federally illegal crop, and cash in an account at the lender needs no trust. A funded reserve also spends appropriated money rather than pledging the state's credit, which sits more comfortably under New York's Constitution.
New York State Energy Research and Development Authority ("NYSERDA") credit enhancements. NYSERDA uses the same tool to pull private lenders into an unfamiliar asset class. It has solicited a loan-loss reserve "to catalyze clean energy financing in NYS communities" (Program Opportunity Notice ("PON") 4378). Its $20 million State Energy Financing Fund awards credit enhancements to lenders for decarbonization projects, capped at $5 million per award or 3 percent of the applicant's proposed lending portfolio, whichever is less, and directs at least 35 percent of benefits to disadvantaged communities (Governor's office, Sept. 11, 2023). Two features carry over to our proposal. NYSERDA sizes support as a small share of a whole portfolio, which shows how far a modest reserve stretches across many small loans. It also attaches community-targeting conditions to the award without touching any credit decision. That is the template for tying a cannabis reserve to MRTA eligibility and certification conditions while the lender still underwrites every loan.
One catch limits the analogy. Federal State Small Business Credit Initiative ("SSBCI") money funds part of CAP, and Treasury's rules bar support for "direct and indirect marijuana businesses" (SSBCI Guidelines). A cannabis reserve needs state-source capital. Section 99-ii supplies it. The three programs together supply the design. From CAP we take the lender-held reserve, the premium match, and lender-controlled credit decisions. From NYSERDA we take portfolio-scale sizing and policy conditions attached to the award. From the NYC program we take the lender-network model and reject the unfunded promise. Conjecture: the shortest path is a state-funded CAP clone, run by OCM or ESD with cannabis revenue, with CSGC's farmers as the first enrolled portfolio.
Lessons from the Social Equity Fund
The fund never raised its planned $150 million in private equity. It borrowed senior secured debt from Chicago Atlantic at 15 percent, with the state guaranteeing payments on default. It passed the cost down as 13 percent loans to Conditional Adult-Use Retail Dispensary ("CAURD") licensees on build-outs of $1.5 million or more per store that the licensees did not control. It financed roughly 21 dispensaries in two and a half years before the state stopped lending in 2024. The managers collected about $1.7 million in fees regardless of outcomes (Marijuana Moment; CRB Monitor). By June 2024, Senators Krueger and Rivera called it "not a social equity fund" and demanded an Inspector General investigation (Krueger/Rivera statement). By mid-2026 the borrowers had organized to seek restructuring, and one operator stopped paying his loan (CRB Monitor; MJBizDaily).
The lesson is structural. The fund put the state inside the deal: state-picked sites, state-managed build-outs, private credit at 15 percent, and fee-earning intermediaries. A reserve inverts each choice. The lender underwrites. The borrower controls its costs. State money stands only behind first losses. No intermediary earns fees on volume. The fund's failure argues for this design, not against state credit support.
Banking regulatory analysis
In 2014, the Financial Crimes Enforcement Network ("FinCEN") issued its guidance for those banks and credit unions considering banking cannabis related businesses (CRB's), "BSA Expectations Regarding Marijuana-Related Businesses," FIN-2014-G001. Several initial points should be made about FinCEN's guidance. First, it applies only to financial institutions, i.e., state- or federally-chartered banks and credit unions. Second, it makes no distinction between depository services and financing, or lending, services. Rather, it refers only to "financial services" throughout. While the guidance is just that, not a regulation or statute with definitions and official staff commentary to clarify certain provisions, "financial services" would include both depository and lending services. The FinCEN guidance requires financial institutions to perform enhanced onboarding (i.e., KYC), ongoing enhanced due diligence and account monitoring. The FinCEN guidance also requires financial institutions to file suspicious activity reports (SARs) on a quarterly basis for account activity. If there is actual suspicious activity on the account, including what are known as the "Cole Memo priorities" such as selling marijuana to minors, the financial institution is directed to file an elevated SAR. These are known as "Marijuana Priority" and "Marijuana Termination" SAR filings.
An analysis of the two-part fix proposed in this White Paper whereby New York would fund a loan-loss reserve with cannabis revenue and, specifically, one guaranteed loan to CSGC, a wholesaler of biomass through one marketplace is warranted.
First, would CSGC be considered a CRB under the FinCEN guidance? Because it is "plant touching", i.e., it acts as a wholesaler of members' biomass through one market and removes crop from the farm, it very likely is. Therefore, it is probable that the financial institution banking CSGC has conducted enhanced onboarding, continues to conduct enhanced account monitoring, and makes SAR filings on a quarterly basis.
What about New York's state agency that would fund a loan-loss reserve with cannabis revenue? While not a "plant-touching" entity, it is arguable that it would be a service provider of a CRB and thus should be treated as an "indirect" or "ancillary" CRB. There is no definition in statute or regulation for an indirect CRB, nor is there any guidance for how an indirect CRB should be treated by financial institutions from a risk perspective.
One could argue, by extension, that the tax revenue departments in states where CRB's conduct business pursuant to state cannabis regulatory authorities are also indirect CRBs. Informal industry guidance has been issued calling for a tripartite delineation of cannabis businesses, Tiers I, II, and III. A financial institution's decision about whether a governmental agency which, as part of its services, offers assistance to CRB's, should be treated as an indirect CRB is ultimately, in the absence of federal guidance, a risk management one. I would argue that government agencies, such as New York's agency funding a loan-loss reserve with cannabis revenue, with their strict accounting and other protocols, would not necessarily have to be treated as an indirect CRB purely from a risk management perspective. The argument for not classifying them as such becomes even more persuasive if that government agency does not have its own discrete banking relationship but, rather, its funds are pooled with other agencies' funds.
This year has seen significant movement regarding federal treatment of cannabis. In late April of this year, the Department of Justice ordered the re-classification of state-regulated medical cannabis to Schedule III of the Controlled Substances Act. In June and July, an administrative hearing was held to determine whether adult-use cannabis should be similarly re-classified. While these changes are noteworthy, the requirements of the 2014 FinCEN guidance remain in place. These requirements would include the enhanced due diligence, monitoring and SAR filings to CRB borrowers, whether or not they become a guaranteed cannabis borrower.
From a lending perspective, the move to Schedule III for state-licensed medical CRB's means relief from 280E of the Internal Revenue Code. This, in turn, will lead to healthier balance sheets and better margins, making medical CRB's more attractive borrowers purely from an underwriting perspective. This development, combined with a loan-loss reserve for certain CRB candidates as proposed in this White Paper, should offer financial institutions significant comfort. Having said this, certain collateral, underwriting, legal and contractual risks still remain.
About the authors
Suehiko Ono is a Partner at Cogent Law Group, practicing cannabis and hemp law and corporate law and mergers and acquisitions ("M&A"), and a co-founder and manager of Certified Sun Grown Collective – Northeast Region, LLC. He founded and led EOS Farms as its chief executive, served as General Manager for a New York adult-use cultivator and processor, and began the practice of law at Winston & Strawn LLP (Cogent bio; LinkedIn).
Chris Van Dyck is a Partner at Cogent Law Group. He served as a financial regulatory attorney and then as general counsel, chief risk officer, and BSA officer at a financial institution, where he built a compliant cannabis and hemp banking program. He advises financial institutions nationwide on banking cannabis and hemp (LinkedIn; PBC bio).
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