With banks steering clear and the industry surging toward $22 billion in sales, hemp and its trendy ingredient known as CBD could be the next lucrative frontier for direct lenders.
Earlier this month, Mile High Labs — which says it’s the largest extractor of cannabidiol in the world — closed on a $65 million term loan from MGG Investment Group, a New York-based lender to lower middle-market companies with $10 million to $40 million in earnings. Mile High is using some of the proceeds to pay farm partners who grow the hemp it needs to produce CBD, which doesn’t give a high and is said to be a natural way to ameliorate health issues from anxiety and insomnia to inflammation.
It’s the latest example of direct lenders stepping up where more traditional banks have been hesitant. While federal lawmakers in December opened the door for banks to get involved in the hemp sector, most remain reluctant for fear of accidentally running afoul with regulators. Direct lenders in the past have swooped in to provide capital to out of favor businesses or smaller companies in the tech and consumer spaces, as well as during bouts of volatility in more liquid credit markets. Even though some direct lenders were hesitant to be first into the hemp industry, strong interest suggests others will soon be hot on MGG’s heels.
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