The cannabis industry’s sales have been soaring since its legalization across various states in the United States. Recreational and medical use of marijuana has increasingly become more widely accepted, however, there are still some unnecessary hurdles and roadblocks that continue to bog the industry down that need to be addressed.
The 2018 numbers show this business venture makes around $46.2 billion, highlighting that California, on its own, took in a whopping $345.2 million in tax revenue that year. The stats don’t lie. But how did they get there? Did those cannabis businesses receive some form of cannabis business funding to get off the ground?
The cannabis industry is expeditiously becoming more and more lucrative; from a surreptitious side hustle to a full-on force. As a consequence, this growth has paved the way for more serious players in the cannabis business sector, with numerous economic opportunities on the horizon. With that being said, how do you open your own cannabis business? How do you receive cannabis business funding? How does all of this work? Read on for the answers to all those questions down below.
How To Get Cannabis Business Funding?
Because of the stigma surrounding marijuana despite its decriminalization, business hopefuls and hard-working entrepreneurs face constant rejection from banks declining their loans. What can you do about this? Are there other ways to raise your capital when you’re working on getting your cannabis business off the ground?
Here are some ways to raise the capital you need when starting your cannabis business:
- Find investors. This method involves essentially selling a piece or percentage of the ownership of your business to someone on the outside, an investor. While some might be opposed to this idea, investors can bring in big bucks which can help you gain some leverage and consequently, make bank.
- Receive loans from credible cannabis-positive lenders. You can inquire and explore banks or other finance companies that are supportive of the cannabis niche, and who would be willing to approve your loan request. On the other hand, you can also look for friends or family that might want you to borrow from.
- Use your business profits to reinvest. You can utilize your current profits from your business even if it is just starting. Reinvesting profits back into your business provides different avenues for you to grow your money which you could eventually pay off in the long run.
- Development funds. The state of Illinois came up with a $30 million Cannabis Business Development Fund from which business owners can make low-interest loans to social equity licensees in the State. The state of Washington followed in Illinois’ footsteps in 2020, establishing its own social equity technical assistance grant program. Consequently, other states are showing signs that they too will create their variation of this program to support local, up-in-coming cannabis businesses.
Can You Borrow From A Bank?
The problem is that many banks are monitored by the federal government. Oftentimes these financial institutions hold the view that anything remotely related to marijuana is illegal. Borrowing money to purchase or rent real estate for your business is risky too because it can be considered money laundering by the banking system.
You could opt for a state-chartered bank or community credit union, however, every bank has to keep in mind the Bank Secrecy Act. This act forces them to decline transactions of $5,000 and above that relate to illegal activity. This can place a big red stop sign in front of cannabis businesses. This is a primary impediment to business owners in the cannabis industry.
On a positive note, the House of Representatives passed the SAFE Banking Act in 2019. Most recently, it was introduced to the House of Representatives in 2021. This act permits financial institutions to legally connect to those in the cannabis industry.
Top 3 Cannabis Business Loans
Looking for credible and business-friendly loans would be the next step in getting funding for your business? It’s important that you look at all the options under each financing company and how they might fit into your current structure or situation. Additionally, browsing customer reviews can help prevent any future heartaches, red flags, or potential scams. Here are the top 3 business loans you might want to check out:
GUD Capital serves a wide range of niches and provides several financing and loan options for you to choose from. They can work with all the 50 states in the US, Canada, and the United Kingdom. You can also consult them for guidance on what type of financing suits your business best. They usually work with small and community banks that can help you obtain your loan.
The issue with turning to this commercial funding marketplace is that there could also be too many options resulting in decision fatigue. You might also want to watch out for a 1-2% fee for their services. You want to be very clear with them about your questions on the application and post-funding. There aren’t too many online reviews on GUD Capital which could also make it difficult to take a leap of faith and might even pose a red flag.
Diamond Business Loans
This California-based financing company specializes in working with cannabis businesses. They cater to both startups and existing businesses. The group has perfect Yelp reviews which rave about the team’s helpfulness and professionalism. They offer three main financing and loan options:
- Loans for Working Capital
- Equipment Leasing & Financing
- Accounts Receivable & Factoring
Dynamic Alternative Finance
Dynamic Alternative Finance is a financing company that knows its way around the game with over 30 years of experience under its belt. They are also tailored to be able to provide quality services to cannabis business owners. They have 4 ways to help you:
- Working capital loans
- Bridge loans with tenant improvements
- Real estate financing
- Equipment leases
All you need is to have your cannabis business meet their basic requirements:
- Business up and running for at least 2 years
- A personal credit score above 700
- A business bank account
- A tax identification number
Even with the rise of cannabis businesses and increasing legalization across the country, the age-old baggage of deeply rooted negative public opinion persists and needs to be rooted out. This is present especially when it comes to cannabis business owners getting their businesses off the ground and receiving the same treatment any other business would experience, like receiving loans or creating bank accounts.
Luckily, this is slowly shifting; however, pioneers in this industry will find that many different alternatives for funding are popping up around them.