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How does cannabis private credit leverage differ from traditional private credit market approaches?

September 11, 2026 The Single Source · Brendan Fay

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Cannabis private credit funds target equity returns at two times leverage or less, whereas traditional private credit firms typically deploy five to ten times EBITDA while delivering only sub-10% yields. This conservative leverage structure fundamentally realigns risk and return incentives in the cannabis credit space.

The difference is not accidental—it reflects the structural realities of lending into limited-license cannabis markets. As Brendan Fay explains in the episode, cannabis operators in these restricted jurisdictions generate outsized profitability precisely because licenses are scarce. Deploying less leverage while targeting higher absolute returns per dollar deployed allows private credit firms to align with their borrowers' actual cash generation capacity rather than assume aggressive leverage can be serviced indefinitely.

The competitive environment reinforces this strategy. Lenders in cannabis private credit operate as price setters rather than price takers, a luxury unavailable to most traditional private credit firms drowning in capital competition. With approximately $5.4 billion in cannabis maturity obligations due in the next 24 months and a severe scarcity of available capital to refinance these loans, cannabis-focused lenders can dictate terms without racing to the bottom on pricing. Traditional private credit markets, by contrast, are saturated with capital seeking deployment, forcing firms to leverage higher just to compete on risk-adjusted returns.

This structural advantage extends beyond leverage ratios. By maintaining disciplined leverage discipline while targeting equity-like returns, cannabis private credit firms can weather volatility in both the macroeconomic environment and regulatory landscape. They avoid the trap of traditional private credit funds that have grown dependent on multiple compression to justify their outsized leverage—a trap that exposes them when markets tighten or refinancing windows close.

"Lenders in this space are going to be price setters rather than price takers, whereas in a lot of other private credit industries there's so much competition that private credit firms are price takers instead."

For investors evaluating cannabis credit opportunities, the leverage differential matters profoundly. A fund targeting equity returns at 2x leverage is fundamentally less dependent on multiple expansion or aggressive refinancing to hit return targets. It can absorb operator underperformance, regulatory headwinds, or market dislocations without cascading into a restructuring event. Traditional private credit at 5–10x EBITDA has no such margin for error—it requires perfect execution and benign exit multiples to succeed, a risky proposition in any cyclical market.

As discussed at length in this podcast episode, the cannabis industry's current funding vacuum creates a window where disciplined capital deployed at conservative leverage can earn outsized returns without taking outsized risk. The question for LPs is whether they're willing to prioritize true risk-return alignment over the leverage multiples that have become standard (and often excessive) in broader private credit markets.

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