Cannabis Business Funding & Financing Options Explained

cannabis-business-funding-options

As cannabis is becoming more legally and socially accepted, business is booming, and more entrepreneurs are looking to enter this new gold rush by starting their own cannabis companies. Although the industry provides a promising outlook financially, owners will still need to put in a considerable investment to get their ventures off the ground.

That’s where funding comes in. 

Funding for a cannabis company is a bit different then it is for most companies. Despite cannabis’ growing acceptance, there are still a lot of legal issues involved and this makes it risky for some investors. However, with the profitability the industry promises, you can be rest assured there are still plenty of parties that are interested. 

Read on to find out more about the options that are available to you.

Venture Capitalists

Venture capital capitalists are private equity investors that provide capital to companies that exhibit high growth potential. There are certain venture capital companies that focus specifically on cannabis startups including Snoop Dogg’s Casa Verde Capital. If you are beyond the start up stage and require funding, New Capitalist Ventures has a list of venture capitalist funding options to explore. 

Angel Investors

Angel investors are individuals who provide capital in exchange for a convertible debt or ownership equity. Angelist is a web site devoted to matching entrepreneurs with angel investors and they have an entire section that lists investors looking to break into the cannabis industry. You can also try to find an angel investor by asking around and attending conferences and conventions to see who may be interested.

Crowdfunding

Crowdfunding is a popular way for companies to raise capital that they can use to start or grow their company. There are several platforms that will accept approved companies for fundraising. These include Indiegogo, Kickstarter and StartEngine. There are also certain crowdfunding platforms specifically dedicated to raising funds for cannabis businesses including CannaFundr and Fundanna. 

Debt Funding

Debt funding involves funding by taking out loans or using business credit cards. Federal regulations can make this type of funding a bit tricky but there are alternative lenders and financial platforms that are open to funding cannabis businesses. These include the following:

Online Lenders: Online lenders that are open to funding cannabis businesses include Kabbage, Fast Capital and United Capital Source. These lenders offer short term options such as working capital or lines of credit with quick turnaround.

Debit System: Credit cards can be used to fund businesses, but legal gray areas make it likely that you won’t be able to obtain a regular business credit card through a bank. You may be able to use a personal credit card, but it is technically illegal to make business purchases this way.

One soluton is to use a special debit system available through a platform called CanPay. CanPay allows businesses to accept debit payments from consumers who are signed up with the platform. However, Can Pay isn’t regulated by the federal government and your money may not be secure when using this system. 

Equipment Funding for Cannabis Businesses

Cannabis businesses require a good deal of equipment and, in addition to thinking of your start up and business expenses, you will also need to think about equipment funding. 

When thinking of equipment, you will want to decide whether you want to buy new or used equipment. Obviously, new equipment will be more expensive, but it will also give you the confidence of knowing you are dealing with the latest technology and components that are less likely to break down. 

Next you will need to decide whether you want to buy, lease or finance the equipment. 

Just because you have money to buy equipment, that doesn’t mean you need to spend it all at once. A leasing or financing option will allow you to hold on to some of the money so you can distribute it accordingly for better cash flow. 

However, those in the cannabis industry may also have higher interest rates than other entrepreneurs. This is due to the increased risks and legal gray areas that surround the business. 

So, while most equipment loans carry a 5-8% interest rates, cannabis businesses may be dealing with interest rates in the 8-25% range. 

The gray areas and risks involved in cannabis also make it difficult to find lenders. However, there are some options that are worth looking into. These include the following: 

Dealerships: Growers may be able to lease growing equipment through dealers that sell farm equipment. Terms generally last 2-10 years. Your credit may affect your ability to get a loan and the amount of interest you will have to pay.

Private Party: A private party is another option for purchasing growing equipment. Usually this type of equity financing is only available for purchases of $25,000 or more. Payments tend to be low and agricultural industry friendly. 

Auctions: There are also auctions where bidders can buy agricultural equipment for growing. These items tend to have a starting price of $25,000 and organizations will check a bidder’s credit before they are allowed to bid. 

In general, if you are looking to lease cannabis equipment, credit scores will need to be at least 650. 

Entrepreneurs will need a combination of agricultural equipment and other types of equipment to get started. Here are some types of equipment you will need to get started.

  • HVAC Units: These are used to measure humidity and temperature in grow rooms to ensure plants are growing at optimal conditions. 
  • Lighting Equipment: The proper lighting equipment will also help your plants grow. 
  • Security Equipment: Since the cannabis industry is highly regulated, security is a must. Alarms, cameras and digital storage should all be used to monitor locations and keep track of inventory. 
  • CO2 Extractors; These are used to extract oil from plants and they are necessary in making THC and CBD products. They often come with a five figure price tag and business owners will typically finance them to offset expenses. 

Point of Sales Systems

Point of sales systems aren’t exactly equipment, rather they are a kind of technology that is used by businesses to manage and accept payments. 

It’s a good idea for cannabis entrepreneurs to work with POS systems that specialize in the industry. Not only with these POS systems help you process sales, they will also make sure you are staying compliant. 

Green Bits can be useful to those specializing in marijuana sales. This platform manages all aspects of the sales process and uses state law integration to make sure you are staying compliant. 

LeafLogix is recommended for growers, distributors and processors. It helps you manage all aspects of your business from cultivation to distribution to ecommerce to point of sale. It has the capabilities to help you manage and track your day to day activities. 

Cannabis Research Funding

As the cannabis industry continues to grow, there is a lot of research being conducted concerning how the plant affects wellness. 

Research is typically done at universities who apply for grants to get funding. Grant writing requires a certain skill and those applying for grants will need to prioritize to make sure the funding is going towards the most essential purposes. 

Cannabis research is most commonly funded by the industry itself. Industry giants such as Canopy Growth, Curaleaf, Charlotte’s Web, Tilray and Cronos have recently donated money to universities to fund research efforts.

Final Thoughts 

If you are thinking of starting your own business, the cannabis industry can be quite lucrative. However, there is a lot to think about in the financing process. So make sure you do your research and carefully plan out everything before you sign your name on any paperwork!

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