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The New York City Economic Development Corporation will launch a loan fund – to which it will contribute $8 million – for licensed cannabis businesses in the city.
The Cannabis NYC Loan Fund will provide flexible capital at below-market rates to NYC-based early-stage cannabis businesses that are owned by social and economic equity applicants, according to a Request for Proposals NYCEDC released Monday.
“Loans will be coupled with technical assistance to increase the likelihood of borrower success and to mitigate the risk of default,” the RFP says. “Capital and associated programming will support [social equity applicants] … to compete against better-resourced incumbents.”
NYCEDC will commit up to $8 million of subordinated capital at a 0% interest rate to the Loan Fund and is seeking a capital partner and a fund administrator, with responses to the RFP accepted until Sept. 7.
Interest rates for borrowers will vary.
“All loans originating from the Loan Fund will be provided to Borrowers at this blended, fixed interest rate,” the RFP said.
The loan fund announcement comes as cannabis licensees in all areas of the supply chain are struggling. Retail shops are opening at a snail’s pace compared with the timeline Gov. Kathy Hochul laid out last year, which is causing problems for cultivators and processors, who have few places to sell their products.
While such a fund could be a boon for licensed cannabis entrepreneurs in New York City, it’s unclear if the terms for capital partners are enough to attract much investment, said Peter Su, a banking expert who has spearheaded and developed several cannabis banking programs.
“If I’m a lender, and I’m asked to provide below market-rate loans, unless my company has some kind of a social equity mandate, that doesn’t really make business sense,” Su said. “Lenders are looking to make a return.”
NYCEDC will host an informational session about the fund at One Liberty Plaza on Aug. 3, according to the agency. Respondents to the RFP may submit questions about the fund to NYCEDC until Aug. 10, and the agency will post answers online by Aug. 22.