Obtaining a cannabis business loan is the main barrier to entry into the medical marijuana and recreational marijuana industries. This article looks at what you can do as an aspiring weed entrepreneur to structure your approach and get the cannabis financing you need.
3 methods of cannabis financing
Whether you own a corner grocery, a fine restaurant, a marijuana cultivation enterprise, or a huge tech firm like Amazon, there are only three primary ways of obtaining cannabis financing:
Reinvesting business profits
Taking out a loan from a lender
Selling an equity stake to an investor
If you are not already a viable business generating profit, then reinvesting profit is not an option. That leaves borrowing and selling equity.
If you are not already established as a business, then you have no business equity. So that option is also out the door.
That leaves getting a cannabis business loan or using credit cards, both of which must be repaid. And that can be very challenging, especially for those who desire to launch into business in the marijuana industry.
Can I get a cannabis business loan?
It’s important to understand that obtaining cannabis financing is more challenging than obtaining financing for most other types of businesses.
Marijuana is still ILLEGAL at a federal level. To the dismay of much of the world, in the USA, this medical plant is considered a Schedule 1 illicit drug, like heroin and LSD!
According to the DEA, “Schedule I drugs, substances, or chemicals are defined as drugs with no currently accepted medical use and a high potential for abuse.”
Whether we like that or not, it is currently the way that the federal government defines our blessed Mary Jane.
And that makes obtaining cannabis financing a real challenge!
Why is it so difficult to get a cannabis business loan?
Even in states like Michigan, Alaska, and California, where there seems to be a marijuana dispensary everywhere you look, it is federally illegal for a bank or credit union to issue cannabis business loans.
These depository institutions are insured by the federal government – and it says NO!
Resultantly, most banks are unwilling to loan money or even issue credit cards to cannabis entrepreneurs.
To make things more difficult, venture capitalists, angel investors, and other types of private equity investors are also generally prohibited from providing cannabis financing.
What about CBD business loans?
Even though cannabidiol (CBD) is not classified as a Schedule 1 illicit drug, getting a CBD business loan can be as challenging as getting a cannabis business loan. Again, traditional lending institutions will be of little help until national decriminalization is achieved.
So, what are the options?
CBD Business Loan Option 1: Bridge Loans
Bridge loans are also referred to as “interim financing”, “swing loans”, or “gap loans”. They are short-term loans that are tagged with high interest rates. In most cases, collateral is required to get one. However, in a financial pinch, a bridge loan can get you past the rough waters.
CBD Business Loan Option 2: Private Loans
Some private lenders offer cannabis financing, but you need to carefully research each before bothering to apply. These non-bank lenders have unique requirements.
For example, some private lenders may be alright with loaning money for a cultivation operation but not an edibles manufacturing venture. There are no set rules here. Make sure the lender you’re approaching is interested in the sector that you plan to serve.
XXX offers cannabis financing and CBD business loans to well-qualified applicants. Reach out to our helpful team today and explore your options for obtaining the cannabis financing you need. We’re here to help!
https://www.leafly.com/news/industry/how-to-get-funding-for-a-cannabis-business
https://www.fundera.com/business-loans/guides/cannabis-business-loans
https://advancepointcap.com/cannabis-business-loan/
https://bespokefinancial.com/blog/how-do-business-loans-in-the-cannabis-industry-work/