There’s a sense in which legal cannabis retail has not fully shaken the stigma of pot dealing, even years after legalization issues have been resolved (in certain states). To some degree, we’ve seen that stigma reflected in the reluctance of financers to step into the cannabis space, despite its huge growth potential. Certainly banks have been slow to embrace the expansion of the industry, if we can judge on the basis of business loans given out to even established retailers. Another, perhaps more powerful source of investor reluctance is the unique regulatory landscape of the cannabis industry, often subject to change and revision.
In this potted guide, we’ll look at some of the more common and some of the more overlooked options for 420-friendly finance, assessing them and what they have to offer your business.
1. Understanding the Cannabis Industry Landscape
First and foremost: the industry and its unique dynamics. As of the date of writing, summer of 2023, we still see a fair amount of legal variation, across state and national borders. While some states were early to the punch, embracing full regulation, others have held out, with only limited legal permissions for medical marijuana, or else ongoing, broadly encompassing, prohibitions. As should go without saying, full compliance with any and all regulations, state, national, and whatever else, should be thought of as a necessary building block of any investment strategy.
2. Cannabis Loans: Unlocking Opportunities
Cannabis loans and lending organizations are tailor-made for the industry, with its slew of particularized laws, rules, impositions, and regulations. Any cannabis business loan, then, will factor in the unique set of risks at play in the cannabis industry. Seeking out lenders who specialize in canna loans and cannabis lending, as opposed to a less focused search, will help you streamline your financing process. Many major cannabis REITs, or real estate investment trusts, including AFC Gamma, NewLake Capital Partners, IIRP, Rainbow Capital Group, as well as others, offer funding for dispensaries, greenhouses, and processing plants to get your cannabis company off the ground and thriving.
When applying for a cannabis loan, be prepared to present a well-crafted business plan, complete with financial projections, compliance strategies, and a detailed overview of your cannabis business model. This will increase your chances of obtaining approval from lenders.
Flourish is proud to partner with two Cannabis focused lending organizations that offer lending for Cannabis business, and operators, respectively. Lendica is an integrated partner of Flourish that offers both buy and sell side funding for raw and finished goods through their PayLater and FundNow solution. They also offer a line of credit to operators with their DrawDown offering. For retail sales, along long as Credit Cards avoid the Cannabis industry, KindTap offers an instant financing for customer purchases as part of their Flourish Partner AeroPay Integration.
3. Cannabis Equipment Loans: Investing in Efficiency
Thanks to its dynamism, cannabis retail, from seed-to-sale, involves regular change, and with regular change, regular reinvestment in equipment, equipment that is often pricey to begin with. The necessary investment in machinery is what, in part, makes securing a cannabis loan so critical, whether you’re managing a new company or looking to reinvest in one already well-established. Loan needs are especially critical in the case of upstart companies lacking substantial upfront capital. These loans enable you to invest in high-quality equipment, ultimately enhancing the efficiency and productivity of your cannabis business. With state-of-the-art equipment, you can maintain product quality, meet demand, and establish a competitive edge in the market.
Established suppliers to the cannabis Industry are very familiar with the problems it faces. Many have established relationships with banks and lending organizations that are comfortable working with Cannabis Operators. Flourish MSP & hardware vendor PLS is a vendor that can offer leasing options to turn capex into opex.
4. The Rise of 420-Friendly Banks
In the past, cannabis entrepreneurs faced difficulties in securing financial services due to federal regulations that discouraged traditional banks from serving the industry. However, times are changing, and several banks have embraced a more "420-friendly" approach, offering banking services to cannabis businesses. It should be said, though, that these services have not quite “caught up” to bank services available to businesses in general. Still, these banks understand the potential of the cannabis industry and are willing to work with legitimate cannabis businesses that adhere to the local regulations. To find a 420-friendly bank, do your research and get recommendations from other cannabis entrepreneurs who have successfully partnered with such institutions.
5. Alternative Funding Options
If traditional cannabis loans or traditional cannabis financing options prove fruitless, explore the alternatives: Crowdfunding platforms, angel investors, and venture capital firms may all be interested in investing in promising cannabis startups, with less in-built risk-aversion than traditional banks. But keep in mind; securing private investment involves persuasion; a pithy pitch, a well-outlined business plan, and thoroughly documented accounting records will all play their role in communicating the viability of your cannabis venture to potential investors.
6. Building Trust and Transparency
Regardless of the funding route you choose, building trust and maintaining transparency are paramount in the cannabis industry. Given the historical stigma attached to cannabis, investors and lenders will be cautious when dealing with cannabis-related businesses.
Demonstrate your commitment to compliance, ethical practices, and community engagement. Providing a clear outline of your business operations and revenue streams will instill confidence in potential funders and partners.
In sum, if investment represents the next logical growth step for your cannabis company, do the following:
- Understand the unique regulations that make your company compliant
- Find lenders who specialize in cannabis loans
- Be ready to re-invest in essential equipment
- Don’t rule out banks
- Offer your best pitch to private investors
Unlock Growth Potential By Investing in Cannabis Software
Once you’ve done the hard part, with financing secured, on to developing an efficient, forward-looking, streamlined business. As key as outside financing is, internally just as crucial is being up-to-date, and increasingly the complexity of managing a cannabis company means purchasing the best software. Software that enforces best practices of compliance automation, inventory standardization, real-time costing information, integrations that save countless hours will literally pay for themselves many times over.
If a company with sound and well-organized moving parts appeals to you, consider Flourish, a seed-to-sale software company designed for the broad and often variable needs of cannabis companies at whatever scale, medium, large or small, who are invested in their own potential. To read more about Flourish and how it can contribute to your being investor-ready, click here.