How private credit built – and will continue to sustain

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In the absence of traditional banking, private credit has emerged as the cornerstone of the U.S. cannabis industry.

Alternative financing groups such as AFC Gamma, Chicago Atlantic, Innovative Industrial Properties and NewLake Capital Partners didn’t just fill a gap – they created the foundation upon which the modern cannabis market was built.

Unlike other sectors where private credit is an emerging trend, in cannabis, it has been the only option since the industry started raising institutional capital around seven years ago.

Since there is no traditional banking sector in cannabis, many of these lenders have been in the private credit game for the past few years or more because, frankly, there was no other alternative.

Over that time, billions have been deployed:

• San Diego-based Innovative Industrial Properties has invested more than $2 billion into cannabis real estate.
• Illinois-headquartered Chicago Atlantic and others have invested over $1 billion into the sector.
• Connecticut-based NewLake has committed more than $425 million.

Without this financing, the cannabis sector – shut out of federally regulated banks – would not have been able to scale cultivation, expand retail or establish the infrastructure necessary to serve a national footprint.

This is not a hot new trend. It’s how the cannabis industry was built.

Cannabis industry defined by necessity

Private credit in cannabis began as a workaround – a response to the industry’s exclusion from traditional financial services because of marijuana’s status as a Schedule 1 drug under federal law.

But the workaround evolved into a highly structured financial solution.

Through sale-leasebacks, high-yield loans and other instruments, private credit not only met the needs of cannabis operators but brought institutional discipline and confidence to a volatile industry.

Private lenders understood the nuances that others couldn’t – or wouldn’t – touch.

They underwrote risk in a uniquely regulated landscape, backed operators when growth capital was scarce and helped build out the real estate infrastructure necessary to support consumer demands.

Today’s cannabis lending environment looks different than it did five years ago.

Capital is more cautious, underwriting is more selective and deal structures are increasingly focused on sustainable profitability and long-term performance rather than rapid expansion.

But that’s not a drawback – it’s a sign of a maturing industry.

This evolution should be viewed not as a pullback but as a sign of market maturity.

Until marijuana reform, industry must stay the course

Even as the United States moves toward potentially reclassifying marijuana from a Schedule 1 to a Schedule 3 drug – reducing tax burdens and opening the door to broader capital access – private credit will likely remain central.

It’s going to take years for banks to come in, if they come in at all.

Even then, very few have the expertise to lend in this sector.

The institutional knowledge that private lenders have built up over the past decade can’t be replicated overnight.

As interest in private credit grows across financial sectors, cannabis might be one of the clearest case studies of its value.

The marijuana industry would not have grown from $12 billion of sales in 2019 to $30 billion in 2024 without entrepreneurial private credit investors funding growth as they sought higher returns in a low-interest rate environment.

Now, larger institutional private credit players are taking notice beyond cannabis as they seek stronger returns amid rising interest rates.

There’s a reason everyone’s talking about private credit right now.

But in cannabis, it’s all we’ve ever known.

We were early out of necessity – and now the rest of the world is catching up.

Should rescheduling or federal reform occur, traditional banks might eventually step in.

If they do, pricing might compress, yields might drop and operators might gain access to more conventional loans.

But that shift will happen gradually, and only the most prepared lenders – those who understand the regulatory complexity of marijuana – will benefit.

For now, entrepreneurial private credit vehicles remain the engine behind cannabis growth and will likely continue to power the sector through its next phase – focused not on hype but on fundamentals.

Jarrett Annenberg is a co-founder and adviser at NewLake Capital Partners, a Connecticut-based provider of real estate capital to state-licensed cannabis operators. He can be reached at jannenberg@newlake.com.