Partner Colorado Credit Union is adding lending to its cannabis banking program, the $500 million-asset institution announced Tuesday.

The credit union, based in Arvada, Colorado, where recreational cannabis is legal, said the program's first loan products will be for real estate loans for properties that contain an existing structure, including new loans and refinances. 

The lending program will be available first to its 500 private banking clients who, according to the credit union, have a combined cash flow of more than $200 million per month.

Doug Fagan, Partner Colorado's president, said the new lending program aims to help cannabis companies grow their business without having to sell assets or seek out private lenders — options he said many cannabis companies turn to when they fall on hard times and can’t access a bank loan.

Cannabis's designation as a Schedule 1 drug under federal law has left many financial institutions reluctant to open bank accounts for the emerging industry.

"It's a way for them to get into mainstream banking and grow their business, and get through the kind of financial difficulties we're having in today's environment," he told Banking Dive. 

Fagan said the credit union's loan program completes a "huge piece of the puzzle" that's missing for cannabis-related businesses, most of which don't have access to government funding, such as the Paycheck Protection Program (PPP), a coronavirus relief effort meant to help businesses weather the economic downturn.

According to 2018 policy guidance issued by the Small Business Administration (SBA), which runs the PPP, "businesses that derive revenue from marijuana-related activities or that support the end-use of marijuana may be ineligible for SBA financial assistance."

That same guidance also bars indirect cannabis businesses from receiving federal loans.

The policy, however, hasn’t stopped several companies that provide ancillary services for cannabis businesses from receiving PPP loans, according to a Law360 analysis of PPP data that was released Monday by the SBA.

The publication, however, was unable to find any plant-touching businesses, such as dispensaries, that received PPP loans.

A cautious approach

Partner Colorado, to mitigate risk, is extending the program only to existing clients whose businesses the credit union has already vetted, Fagan said.

"We're going into this slowly and cautiously. There's a real risk in terms of accepting payments on these loans because you have to know where that cash is coming from," Fagan said. 

Stan Zislis, a co-CEO and founding partner of Silver Stem, a medical and recreational cannabis company, is one of the credit union's first clients selected to participate in the lending program. 

"Lending means jobs to us," Zislis said in a statement. "Real estate lending is one small step toward full-service banking, but it is a very important first step."

David Michel, partner and general counsel at Igadi, a vertically integrated cannabis grow and retail operation and a Partner Colorado client, said the real estate loans will help his company eliminate leases and, in turn, build wealth.

"We have a waiting list of people that want to borrow," Fagan said. "We're also trying to engage some of our other partners in the financial industry to participate in some of these loans, so we can do a little bit more than we can hold on our balance sheet."

Fagan said Partner Colorado has been careful to work with state regulators in crafting the program.

"We've worked really closely with our state regulators, making sure that they're comfortable with our policies and underwriting guidelines that we put in place, and we got their blessing," he said. 

The credit union's cannabis banking program was started six years ago by Partner Colorado CEO Sundie Seefried with a single vision to eliminate the industry's cash-based status, Fagan said.

"We think it has been a good decision," Fagan said of entering the space. "As a credit union, we're pretty community focused, and we get a lot of money off the streets, which creates safety in our communities."