Navigating the Complex Landscape of Cannabis Financing in Montana: Legal Frameworks, Restrictions, and Practical Solutions
By Christopher C. Young, Senior Attorney at Gravis Law
Christopher C. Young is a Senior Attorney at Gravis Law with decades of experience in business law and cannabis law. He provides tailored solutions to help clients navigate complex legal challenges with confidence. Christopher advises businesses on regulatory compliance, corporate transactions, and operational strategies, ensuring they remain compliant while achieving their goals.
In the cannabis sector, Christopher offers strategic guidance to businesses navigating this evolving industry, addressing regulatory and legal challenges unique to the field. With a focus on practical, client-centered solutions, Christopher helps his clients achieve success in an increasingly complex legal landscape.
In the burgeoning field of legalized cannabis, securing adequate financing stands as one of the most significant hurdles for entrepreneurs, operators, and investors. While many states now permit the regulated production and sale of cannabis, legal pathways to raise capital often remain narrower and more complex than in other industries. The interplay of state-level statutes, administrative rules, and frequently evolving regulations creates a legal environment fraught with pitfalls for the unwary. As a practitioner who has guided clients through these intricate frameworks, I have seen firsthand the challenges cannabis enterprises face in obtaining capital—and the creative strategies that have emerged to overcome them.
This article examines the key legal restrictions that shape cannabis financing, including the definitions of “controlling beneficial interest” and “financial interest,” as well as residency requirements and pre-approval mandates by the Montana Department of Revenue Cannabis Control Division (“Montana CCD”) (see generally Montana Department of Revenue Cannabis Control Division, Montana Marijuana Regulation and Taxation Act, MCA §16-12-101 et seq.; Administrative Rules of Montana, ARM 42.39.101 et seq.). We will then turn to practical, legally sound solutions, including loan structures, leaseback agreements for real estate, equipment, and even intellectual property licenses. These strategies, while not entirely removing the complexity from cannabis financing, can provide a lawful path forward for businesses poised to thrive in this dynamic sector.
The Regulatory Roadblocks to Cannabis Financing
- Definitions of “Controlling Beneficial Interest” and “Financial Interest”
In traditional business sectors, securing capital might be as straightforward as selling equity or taking on investors. In the cannabis space, such arrangements require careful legal scrutiny. Regulatory bodies often define “controlling beneficial interest” to include not only majority owners but also certain individuals or entities that can influence the direction, policies, or management of a cannabis business. In Montana, a “controlling beneficial owner” is a natural person who acquires 5% or more of the beneficial ownership (See section 13(d) of the federal Securities and Exchange Act of 1934); is an affiliate that controls a marijuana business, including a manager; or is otherwise in a position to control the marijuana business. In addition, a qualified institutional investor is a controlling beneficial owner if it acquires more than 15% of the ownership interest. Bills introduced in the 2025 legislative session may remove business managers from the definition of “controlling beneficial owner” if it becomes law.
In addition to controlling beneficial owners, persons with a “financial interest” must also meet a laundry list of qualifications set forth in MCA §16-12-203. A “financial interest” is defined as “a legal or beneficial interest that entitles the holder, directly or indirectly through a business, an investment, or a spouse, parent, or child relationship, to 5% or more of the net profits or net worth of the entity in which the interest is held.” However, the statutory definition “does not include interest held by a bank or licensed lending institution or a security interest, lien, or encumbrance but does include holders of private loans or convertible securities.” See MCA §16-12-102(13). This makes the acquisition of capital by marijuana businesses extremely difficult.
Thus, holding a relatively small stake, or even lending money, can be considered a beneficial interest or a financial interest if that stake comes with a right to control operations. Once a party is deemed to hold a controlling beneficial interest or a financial interest, they must undergo rigorous vetting—often including background checks, financial disclosures, and compliance confirmations, including proof of Montana residency.
- Residency Requirements
The residency mandate can be another stumbling block for financing. Montana requires persons entitled to 5% or more of the profits or equity in a cannabis business to reside within the state (See MCA §16-12-203(2)(g). This provision aims to keep control of local, nurturing in-state economic growth. However, from a capital-raising perspective, such rules exclude a wide range of potential investors. Non-resident investors cannot directly acquire equity in a cannabis business, including loans that may convert to equity, or must structure their involvement in a way that does not cross the threshold into a beneficial or financial interest. For entrepreneurs, this can be deeply challenging, especially since many conventional banks remain reticent about lending in the cannabis sector.
- Cannabis Control Division Pre-Approval
The Montana CCD monitors the licensing and financial integrity of cannabis businesses. Before closing financing transactions—be it capital raises, mergers, or any structural changes—pre-approval is required. See MCA §16-12-104(15). The Montana CCD reviews disclosures that identify all potential owners or financiers, examines their backgrounds, and scrutinizes the nature of their proposed interests. This pre-approval process ensures that all parties meet the regulatory standards set forth by statutes and administrative rules. Although meant to maintain market integrity, these requirements can introduce delays and unpredictability into the financing timeline. As a result, cannabis businesses must incorporate regulatory lead time and contingencies into their deal structures and anticipate requests for additional documentation or clarifications.
Crafting Legal Solutions for Cannabis Financing
Despite these legal barriers, there are proven strategies that cannabis businesses can employ to secure capital in a compliant manner. Drawing on our experience advising entrepreneurs and established operators, we have found that structured loan agreements and creative leaseback arrangements often provide effective avenues to navigate the regulatory landscape while respecting state guidelines
- Loans
A loan can be a straightforward tool to inject capital into a cannabis business without immediately triggering beneficial interest scrutiny. Unlike equity investments that confer ownership or control, loans—if properly structured—merely create a debtor-creditor relationship. Thus, a secured promissory note can ensure the lender receives a fair return while leaving the licensed entity’s control structure intact. Complying with Montana definitions and ensuring the loan does not evolve into something resembling a profit-sharing arrangement is crucial. For example, if the terms too closely resemble an equity stake or ongoing share of revenue, regulators may find the lender has acquired a financial interest requiring disclosure and approval.
To avoid this, loan documents must be carefully drafted. They should delineate a commercially reasonable interest rate, repayment schedule, and remedies in the event of default without transferring operational control. In Montana, a security interest in the marijuana business itself is considered a financial interest; any loan must be secured by other assets, which may include real estate or tangible property. By working closely with experienced counsel, parties can structure loans that meet both capital needs and compliance standards.
- Leaseback Agreements for Real Estate, Equipment, and Intellectual Property
Leaseback agreements present another promising solution. Under these arrangements, a cannabis business sells an asset it already owns—often real estate, essential equipment, or even intellectual property—to a third party and then leases or licenses it back. This can free up capital (from the sale) for the business without altering the ownership interests in the licensed entity itself.
Since the lessor merely holds title to the asset and leases it back to the marijuana business, this structure can avoid triggering the definitions of controlling beneficial interest or financial interest. By limiting the lessor’s rights to those typically associated with a landlord or equipment lessor, these transactions generally do not convey the kind of control or profit-sharing that the Montana CCD classifies as a financial interest. Nevertheless, it remains important to confirm compliance with the relevant cannabis regulations to ensure no unintended financial interest is created.
The principle also extends to intellectual property (IP). Marijuana businesses may hold valuable state or common law trademarks, proprietary growing techniques, manufacturing methods or formulae, or other brand-related IP. By transferring these rights to a non-resident entity and then licensing them back, the cannabis company can secure capital upfront while maintaining operational control. As with real estate leasebacks, care must be taken to ensure that IP licensing agreements do not inadvertently confer decision-making authority or control that would require regulatory approval.
Looking Ahead
As the Montana cannabis industry evolves, so too may the regulatory approaches the state takes toward financing. While we may see more flexible frameworks in the future, today’s marijuana enterprises must navigate a complex web of rules, definitions, and restrictions. This is where experienced legal guidance is indispensable.
By examining and adhering to the standards set forth by regulators and statutes, operators can develop compliant financing solutions. Loans and leasebacks, properly structured and thoroughly vetted, will open doors to growth and success in a market still finding its regulatory footing.
The path to compliant cannabis financing is winding, but with careful planning, thorough due diligence, and legal guidance informed by authoritative state resources, it is possible to secure the capital needed to compete and thrive. As cannabis businesses innovate and mature, those who approach financing with both creativity and caution can enjoy a smoother journey toward their long-term goals.
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