Starting a business in the cannabis industry isn’t easy. First, there are continually changing rules and regulations that you need to comply with at all times. Second, you’ll be working in an industry based on a product that is still illegal at the federal level. And third, it’s an expensive industry to break into.
The reality is if you want to start a business that touches the cannabis plant at any point in the supply chain, you’ll need to get a cannabis business license, and that license can cost you thousands, tens of thousands, or even hundreds of thousands of dollars.
Fortunately, there are some lenders that are willing to work with cannabis businesses. Leafy Green Agency has partnered with Fundwise to help cannabis entrepreneurs obtain funding.
However, getting loans and credit from traditional banks and sources isn’t easy. In fact, it’s nearly impossible since most banks and financial institutions aren’t willing to risk their national charters by lending money to a business that operates in what is still a federally illegal industry.
That means cannabis entrepreneurs have to get creative to access the funds needed to launch a business that has a chance to succeed in this industry. With that said, take some time to write an amazing business plan and start thinking strategically about how you can fund your business.
To help you get started, here are five ways you can access funding for your cannabis business.
1. Personal Assets
The first place to look for funding is your personal assets. Do you have equity in your home that you could tap into with a home equity loan? Do you have a 401k with funds that you could access? Do you have stocks that you could sell?
While it’s always risky to use personal assets to fund a new business venture, doing so ensures you retain complete control of your business. You won’t have partners or investors to worry about, so you can keep all of decision-making power and the profits that your business eventually generates.
It’s up to you to weigh the risk versus the reward of funding your cannabis business with personal assets, but in an industry where traditional financing is practically nonexistent, it may be your best and only option in the early stages.
2. Friends and Family
If your personal assets aren’t enough to fund your business, you can ask your friends and family members who are supportive of your entrepreneurial venture and the cannabis industry to loan you money or invest in your business.
Be careful here because loans and investments from friends and family can cause problems. Many friendships and family relationships have suffered or been destroyed when money got involved, particularly money used for businesses that failed to produce enough revenue to pay back loans or meet earnings expectations.
3. Business Partners
If you don’t have enough money to fund your cannabis business, you can consider bringing in one or more business partners to share the financial burden. While working with business partners means you’ll need to give up some control and future profits, your business can benefit greatly if you choose the right business partners and have adequate legal contracts in place from the start.
For example, if sales is your strength but accounting is not, bringing in a business partner who is a financial expert and can improve your business’ success. Try not to duplicate expertise when you bring in a business partner. Instead, look for people with complementary knowledge, skills, and experience who are committed to seeing the business succeed on a daily basis.
4. Angel Investors
Angel investors typically invest at an early stage in your company’s lifecycle. They provide seed money to help your business start growing. Think of your seed round of investing as an opportunity to get money to build your product or service so you can get early customers.
Keep in mind, angel investors will expect to have some control of your business and to benefit financially from their investments. If they’re investing tens of thousands or hundreds of thousands of dollars into your business, you can’t blame them. Be prepared to involve them in your business decisions and to give them preferred equity in your company.
5. Venture Capital
When your business is growing and showing a profit, you’ll reach a time when you’re ready to scale rapidly. You’ll need a large influx of cash to do it, and that’s where institutional investors come into the picture with multi-million dollar investments.
Many of the large cannabis businesses in operation secured venture capital funds to get to where they are today. For example, Surterra Holdings raised $25.3 million and Canndescent raised $20 million as of June 2018 according to data from Crunchbase. Those companies began as small startups just like your cannabis business.
Key Takeaways about Funding a Cannabis Business for Entrepreneurs
Depending on what stage your cannabis business is in, you may need to tap into different sources of funding. There are many options available to you beyond traditional banks and financial institutions.
Attend Leafy Green Agency’s business seminar, “Breaking into the Cannabis Industry for Entrepreneurs and Investors,” to learn more about getting funding for your cannabis business. You can see when the seminar will be available in your area and register here.
Don’t see the business seminar or another seminar that you’re interested in coming to your area soon? Contact us to request it!