Securing affordable capital in cannabis can feel a lot like lifting a boulder. Financing is the lifeblood of any business, yet for cannabis entrepreneurs, it has long been an unattainable asset. As the industry grows and gains legal ground, companies are facing a different type of challenge: navigating complex financial landscapes. With federal regulations and traditional banks at arm's length, the cannabis sector has struggled to secure the affordable capital necessary for growth. In this blog, we will explore the challenges faced by cannabis businesses when it comes to financing and how our partnership between Flourish and Lendica removes some of the financial obstacles hindering the growth of cannabis entrepreneurs.
In case this is your first time reading about the regulatory challenges faced by cannabis businesses, here's the TLDR: Financing in Cannabis is a Cluster.
Why Cannabis Financing is a Challenge
Banking Challenges in the Cannabis Sector
Let’s start here. The federal classification of marijuana as a Schedule 1 Drug on the Controlled Substance Act of 1970 hinders traditional financial services for cannabis businesses. The lack of access to banks and credit unions forces many cannabis enterprises to operate in cash, exposing them to security risks and complicating regulatory oversight. Even as regulatory attitudes shift, financial institutions remain cautious due to reputational risks associated with serving the ‘high-risk’ cannabis industry. Fortunately, at this moment in our legalization journey most cannabis license holders are able to secure a bank account. However, this doesn't mean they have access to traditional bank financing.
Lack of Traditional Financing
Many banks and credit unions are happy to hold funds (and take account fees) but hesitant to underwrite business loans. Navigating the financial complexities of the cannabis industry requires tailored funding solutions, and cannabis-specific loans play a crucial role in addressing the unique needs of businesses in this sector. Emerging financial players are stepping up to provide specialized loans and financing such as:
- Working Capital Loans
- Land Lease-Backs
- Equipment Financing
- Lines of Credit, yet good luck if you’re a small or medium-sized business (SMB).
Streamlined Lending Solutions with Lendica and Flourish
While financing challenges persist, innovative lenders, like Lendica, an embedded AI lending company, are partnering with leading software providers, to provide financial support for cannabis SMBs that aligns with the dynamic nature of their businesses. Flourish is proud to partner with Lendica to allow the cannabis community to borrow funds from Lendica directly within Flourish's platform.
Any small business owner will tell you that "cash is king," and cash flow is the lifeblood of a business. Working capital needs fluctuate as a business needs to purchase raw materials, stock up on inventory, and make capital expenditures. Customers sometimes need payment terms that extend the cash cycle.
Key Benefits of Lendica’s Funding Tool Kit in Flourish
You’ve Got Financing Options. Borrowing for specific purposes, instead of taking one large loan, enables business owners to manage their financing costs while scaling more effectively. Lendica's tailored funding products address three critical use cases:
- PayLater: This accounts payable and inventory financing product allows small businesses to defer vendor payments by up to 10 weeks, providing flexibility during unpredictable times.
- FundNow: An accounts receivable solution designed to expedite customer collections, ensuring a steady cash flow for businesses.
- DrawDown: A working capital offering, strategically bridging financial gaps in growing cannabis enterprises.
Direct Access in Flourish. Having a dependable source of funding is crucial for supporting growth in any market cycle. Our customers shouldn't fear missing out on opportunities because they cannot generate enough cash on hand to fund upcoming purchases. Lendica's funding options are readily available within Flourish's user dashboard, so our customers can rest assured that they won't have to decline a significant order due to cash flow constraints. An added bonus: Lendica’s lines of credit do not come with a non-use fee. They are active for 90 days whether you use it or not.
Affordable. Lendica uses data and AI to expedite its underwriting process and offer competitive pricing. When a small business activates iBranch, Lendica’s add-in that allows users to access financing tools in Flourish’s user-friendly interface, Lendica quickly analyzes the data provided by the customer and, in many cases, provides a quick decision for a cost-effective offer tailored to the customer. With just a few clicks, they can draw up to $2.5M in A/P or A/R financing.
Let Lendica Help You Flourish Financially
Until the cannabis industry sees the regulatory changes it desperately needs, strategic partnerships between Lendica and Flourish demonstrate the potential for innovative financial solutions that offer both flexibility and reliability for operators. As regulatory landscapes evolve, businesses must leverage tools. By addressing specific funding needs and integrating seamlessly into existing platforms, Lendica's Funding Toolkit, in collaboration with Flourish, stands out as a valuable resource for cannabis businesses aiming to thrive in these challenging times.
If you're interested in learning how Flourish and Lendica can help effectively scale your business, here is more info.