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[Ask an RU] Underwriting a File with Cannabis Income

Working for or owning a cannabis business has become a commonplace form of employment in the U.S. Why? Well, there is a high demand and it’s legal for medical or recreational purposes in many states.  Published statistics reflect that there are currently 11 states in the U.S. that allow the legal use of marijuana and 33 states allow legal Medical use.

What types of employment might I see related to the cannabis industry?

Enact such significant growth over the last few years, the cannabis industry now employs over 240,000 people in full-time-equivalent jobs.

There are a wide variety of positions in this field – chemists, gardeners, harvesters and dispensers, just to name a few – which afford individuals gainful employment. These legitimate and legal businesses in most cases are able to provide W-2s to their employees, but the main question is do lenders of any type see this as a legitimate form of income for those borrowers. The answer is “it depends” – borrowers will have to check with lenders to ensure they’ll underwrite a loan with cannabis income as a main qualifier.

Does Enact underwrite files with cannabis income?

Enact allows for the use of W-2 income for borrowers working for a grow operation as long as it is a legal cannabis dispensary and meets GSE and Enact income guidelines. We do not allow any farm use/cannabis growing or marijuana grow house on the subject property.

If the borrower is an employee and not an owner of the business, then the most important documents to get are current paystubs, W-2’s and/or tax returns to prove consistency of income. The pay stubs and W-2’s would also need to reflect taxes being taken out.

Owners of cannabis businesses

Enact would not accept income from a self-employed owner of a grow operation business as we must consider the potential and stability of long-term earnings.  There is the potential the business could be seized since cannabis is a “controlled substance”.

Final thoughts on cannabis income

As the cannabis industry continues to expand, it’s likely you’ll start to see more loan files where the applicant’s main source of income is from some sort of legal cannabis operation. Understanding your business’ stance on underwriting loans with cannabis income, as well as the stance of your partners like the mortgage insurance provider, can help you underwrite these files with minimal back and forth. Understand your investor’s acceptance of cannabis income, too.

Enact excels in staying current with the many changes that we as an industry face on a constant basis. If you have any questions regarding underwriting loans with cannabis income, or other interesting scenarios, please reach out to your Enact Regional Underwriting team to discuss them.

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Natalie Stokes is a Regional Underwriting Manager for Enact, with over 22 years of underwriting experience.

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