Equipment financing for cultivation and extraction

How does cannabis equipment financing work?

A finance company pays the vendor, and you repay over a fixed term with the equipment as collateral. It comes in three forms:

Structure	Who owns the equipment	End of term	Best for
Equipment loan	You; the lender holds a lien	You own it free and clear	Long-lived gear you intend to keep
Dollar-buyout (finance) lease	Lessor in form, you in substance	You buy it for a nominal amount	Same as a loan, where the lessor prefers lease paper
Fair-market-value (operating) lease	Lessor	Return, renew, or buy at then-current value	Technology that dates quickly, such as lighting and automation

A fourth variation, the equipment sale-leaseback, runs the process in reverse: the finance company buys equipment you already own and leases it back, turning it into cash.

The providers are specialist lessors, private lenders, and some equipment vendors. Mainstream bank-owned leasing companies mostly decline plant-touching customers for the reasons set out in why SBA and banks are unavailable.

Why will lenders fund equipment when they will not fund a licence?

Because equipment is ordinary property. A lender cannot seize a cannabis licence, and cannot take possession of cannabis inventory without a licence of its own. It can repossess an LED fixture, a chiller, or an extraction skid, subject only to getting lawful access to the premises. That makes equipment debt the most conventional corner of cannabis finance.

Two legal points make it work:

• Purchase-money priority. Under UCC 9-324(a), a lender that finances the purchase of specific equipment gets priority in that equipment over an earlier lender with a blanket lien, provided its security interest is perfected when the borrower takes possession or within 20 days afterwards. This is why an equipment lessor can lend to a business that already has a senior loan. Check the senior loan’s covenants first; many restrict new debt.
• Fixtures. HVAC, electrical gear, and built-in irrigation can become part of the building. If you lease the premises, the landlord may claim them at lease end, and the lender will want a landlord waiver. Deal with this alongside the rest of the lease and landlord consent package.

What equipment can be financed?

Lenders favour items with a serial number and a resale market.

Easier to finance	Harder to finance
LED lighting, benches and racking	Installation labour, wiring, and ductwork
Packaged HVAC units, chillers, dehumidifiers	Custom-built rooms and cleanroom panels
Fertigation and environmental control systems	Software, design, and permitting costs
Closed-loop extractors, rotary evaporators, distillation units	Used or modified extraction equipment without current certification
Packaging, filling, and labelling machines	Anything permanently built into a leased building

The split matters because equipment is only part of a build. One cultivation design firm put equipment at $50 to $300 per square foot against $100 to $300 for construction (Next Big Crop, updated January 2025). Soft costs and construction, often more than half the budget, need another source. Full ranges are on cultivation facility build-out costs.

Extraction equipment carries an extra wrinkle. Approvals are tied to a specific machine in a specific room. California requires re-certification by a licensed professional engineer when a closed-loop system is relocated or materially modified (4 CCR 17206.1). A repossessed extractor is therefore worth less to the next user than its age suggests, and lenders price that in. See extraction facility requirements.

What does it cost?

There is no public benchmark for cannabis equipment finance rates, and this page will not invent one. Two reference points help:

• Public cannabis lenders reported loan portfolio yields of 13.2% (AFC) and 15.8% (Chicago Atlantic) at 30 June 2026. Those are secured term loans to larger operators, not equipment leases, but they show where cannabis credit risk is priced.
• Lessor marketing pages advertise widely varying rates. Treat them as advertising. One industry guide makes the useful point that a quoted rate means little without fees, discount, legal costs, insurance, and the end-of-term payment, and advises borrowers to “compare total dollars paid and net cash received” instead.

Illustrative. A cultivator buys $600,000 of lighting and HVAC, pays 20% down, and finances $480,000 over 48 months at 14%.

Item	Amount
Down payment	$120,000
Monthly payment	about $13,117
Total of payments	about $629,600
Total interest	about $149,600

To compare offers properly, ask every lessor for: the amount funded net of fees, the payment, the number of payments, any advance payments or security deposit, the end-of-term buyout, and the prepayment terms. Then compute total cash out for each.

How does 280E change the tax picture?

In most industries, faster depreciation is a major reason to buy equipment. Under 280E it is weaker. Adult-use operators can only reduce income by cost of goods sold, and in Lord v. Commissioner (March 2022) the Tax Court upheld the IRS position that bonus depreciation and section 179 expensing could not be run through cost of goods sold. Depreciation on production equipment generally reaches the tax return only as it is absorbed into inventory cost over time, and depreciation on retail equipment is not deductible at all while 280E applies.

For qualifying state-licensed medical activity, which moved out of 280E going forward under the April 2026 Schedule III order, the normal rules return. Those now include a permanent 100% first-year deduction for qualifying property acquired after 19 January 2025, confirmed in IRS Notice 2026-11. Dual medical and adult-use operators must apportion, and formal IRS transition guidance had not issued as of September 2026. Whether a lease or a loan gives the better tax result depends on your mix, so this is a question for a cannabis CPA. How the rules fall by licence class is on 280E by license type.

What should a buyer check when the target has financed equipment?

Equipment debt is one of the most commonly missed liabilities in small cannabis acquisitions.

1. Run a UCC search on the seller entity and its affiliates. Match each filing to a loan or lease.
2. Get the documents. Read each lease for the remaining payments, the end-of-term option, and any assignment or change-of-control clause.
3. Decide payoff or assumption. In an asset sale, liens must be released at closing unless you assume the contract with the lessor’s written consent. Get payoff letters.
4. Confirm what the seller actually owns. Leased equipment on a fair-market-value lease is not the seller’s to sell. It should not be on the asset list or in the price.
5. Inspect condition and compliance. Check maintenance logs, and for extraction equipment, the engineer’s certification and fire approvals.
6. Value it realistically. Used equipment supports little price on its own. A buyer pays for cash flow; equipment is what produces it.

These belong in the wider due diligence checklist. Buyers can also use new equipment finance at closing to preserve cash, as one layer of the stack described on cannabis acquisition financing options.

This is educational material, not legal, tax, or lending advice. No financing source is guaranteed, and terms depend on the borrower, the equipment, and the state.