Medical cannabis sales in 2020 hit a staggering $17.5 billion in 2020, an almost 50% increase from the previous year. The cannabis industry is booming, and the perfect time to get your foot in the cannabis game was yesterday. More states are opening up to cannabis, presenting the ideal opportunity to make a killing in the cannabis business.
That said, cannabis has always been a barrier for most people eager to join the cannabis industry. It’s no secret, starting a cannabis shop or dispensary requires capital, lots of it. The good news is that there are plenty of financing options to get your cannabis business off the ground. Today’s post will highlight a few ways you can fund the start-up and growth of your small cannabis business.
Self-Funding
The first way you can finance your marijuana business is through self-funding. As the name connotes, self-funding is where you use your own money to fund your business. It’s also the most popular option, given the inherent difficulty of securing loans for a cannabis business.
Unfortunately, self-funding isn’t a viable option for most cannabis entrepreneurs. That’s because most people don’t have enough money to fund the business. If this describes you, you can settle for the other funding options.
Small Business Loans
Unfortunately, no major US bank will finance a cannabis business. That’s because of the perceived illegality of cannabis. Until the federal government passes major cannabis reforms, this is reality cannabis investors will have to contend with.
The same goes for small business administration loans. You could try your luck with the SBA, but there’s a slim chance of success. Fortunately, there are plenty of other financial institutions that offer small business loans for cannabis businesses. For instance, you can get funding from credit unions with a business credit card or business consulting firms. The recent approval of the cannabis banking bill means things are looking up for cannabis entrepreneurs.
You can use these loans for business activities, including inventory and equipment financing or maintaining your supply chain.
Investment Groups
Many investors in the private market understand the profit-making potential of a cannabis business. You’ll find plenty of investment groups specific to the cannabis business. These groups will readily give you the funding you need if your cannabis business looks promising.
However, it’s not all sunshine with some investment groups. You may have to agree to high interest rates and short repayment periods. There’s also a chance that the investment groups may force you into a “convertible debt” agreement. A convertible debt agreement is an agreement where the investors might convert the debt into an equity stake. This means you may lose a portion of your company if they choose to do so.
Capital Broker
There are plenty of cannabis-specific brokers who can scout for the perfect investors to help finance your cannabis business. A capital broker’s job is to do just that. These brokers scour the internet and directories to look for potential investors for your business.
They can also offer feasible alternatives for securing funding for your business. You’ll have to pay them a fixed salary or commission for their services.
Partnerships
Partners are groups or individuals who provide funding in exchange for partnership with your business. Partnerships because you get a lot more than just funding for your business. You can also take advantage of your partners’ inventory and skillset to propel your business to greater heights.
Third-Party Lenders
Third-party lenders are individuals or groups who can give you funding for your business provided you meet their requirements. Most third-party lenders will review your credit information and financial history to determine your creditworthiness.
However, it’s important to tread carefully with these third-party lenders. There are lots of predatory lenders looking to take advantage of unsuspecting investors. These lenders have astronomical interest rates and unfair terms that they try to hide.
Be sure to read the lender’s terms and conditions before signing the dotted line. That’s the surest way of sidestepping these unscrupulous lenders.
Invoice Factoring
Invoice factoring is an excellent way to get working or growth capital for your cannabis business. You can also use invoice factoring for starting your business, but only if you have another business on the side.
Invoice factoring involves selling your invoice to an invoice factoring company at a discount. The invoice factoring company will then give you some quick cash you can use for working capital. The lender receives payment once your customer pays the invoice.
Alternative Sources of Funding for Your Cannabis Business
If the above financing options don’t work for you, you can consider other cannabis business funding options. You might have to look beyond conventional financiers to get capital for your cannabis business. Some of these alternatives include:
Friends and Family
Your closest friends and family can pool together their cash to finance your cannabis business. They can give you loans that you can use to put up your business. This is especially useful during the early phases of your cannabis endeavor.
Once business picks up, you can repay your friend and family. The best part is you can work out the terms of the financing without any legal oversight. However, it’s good to keep your word and pay back whatever you owe if you opt for this funding option.
Development Funds
Some states offer cannabis development funds to spur the growth of cannabis businesses in their respective states. Illinois, for instance, has put aside $30 million for cannabis entrepreneurs. These entrepreneurs can access the funds to establish and grow their businesses.
Take advantage of any development funds in your region; they don’t have to be cannabis-specific. If you meet all requirements, go for it.
Find the Right Funding for Your Cannabis venture
Whether you’re selling cannabis Sativa or cannabis indica, you should consider the above financing options for your venture. Do your homework on the funding options and find one that fits your situation.
Don’t let lack of funding preclude you from establishing a thriving cannabis business.