HomeblogCannabusiness Funding: How To Do It In 2020
Cannabusiness Funding: How To Do It In 2020
August 6, 2020
Cannabusiness Funding: How To Do It in 2020
To help you survive the current economic meltdown, we will show you how to tackle cannabusiness funding in 2020.
The cannabis market has been thriving in spite of the global economic crisis arising from the COVID-19 pandemic. It seems that people are finding more uses for cannabis; both medical and recreational. A recent study showed that cannabis may be used to prevent COVID-19; though larger randomized trials are needed to give a clear direction on this. Meanwhile, people are using cannabis to manage anxiety, pain, and other symptoms that are associated with the virus. All this speaks one thing; the market is rife with opportunity. Unfortunately, the barriers to entry are significant, and can be insurmountable if you are cash strapped. On average, setting up a cannabis dispensary will set you back at least $725K. Do you have this amount of money lying around? If not, there is an easy way to access funding.
Why Is It Hard To Get Cannabusiness Funding?
Cannabis remains a Schedule 1 controlled substance, in spite of all the progress that has been achieved towards legalization. Consequently, traditional banking institutions are skeptical about lending to cannabis businesses. Not because this is illegal, but rather, to avoid all the red-tape and scrutiny that comes with it. The risk is great, so if a financial institution is to engage with a cannabis business they will want to “err on the side of caution.” This may mean charging top dollar to hedge the risk. This again may make funding inaccessible for cannabis startups. However, this does not mean that it is impossible to find reliable funding for cannabis businesses.
Here is a breakdown of financial institutions that lend to cannabis businesses.
Best Options for Funding A Cannabis Startup
There are a couple of financial institutions that lend specifically to cannabis businesses. But since the legal grey area keeps changing, you are better off doing your due diligence before engaging with any financial provider. It is important to compare and scrutinize the terms offered by different financial institutions before you settle. This may mean going through reviews, asking questions, and making comparisons. Below are a few of the best financial institutions that you can consider as a starting point.
This is a unique marketplace that connects business financiers with business owners looking for financing options. They help cannabis businesses to find investors willing to offer cash in terms of private loans, real estate loans, equipment leasing, and cash advances. They provide funding in the range of $5,000 to $20 million. The interest rate is 8%- 25% depending on a number of factors.
Diamond Business Loans
This is a Colorado based financing company that offers funding for cannabis businesses. They offer unsecured capital, real estate funding, and funding for equipment acquisition.
For unsecured capital they offer up to $150,000. However, you will need to have a credit score above 680 for personal credit to qualify. For real estate financing you can access up to $15 million; with a down payment of 30% of the total amount. For equipment loan each case is considered individually. Enquiries can be channeled through their official website.
GoKapital offers merchant cash advances to cannabis businesses. They give cash advances in the range of $50,000 to $5,000,000. To qualify for this kind of funding you will need to have been in business for over four months. You should also have a credit score that exceeds 500 and a gross turnover of over $150,000. If you feel that you meet the criteria the application process is very simple and can be completed online.
United Capital Source
United Capital Source offers business loans to marijuana dispensaries. They work through a network of lenders to offer small business loans such as working capital loans or term loans. Loans can be offered to cater for daily expenses, staffing, advertising and more. The loan application process can be conducted online and usually takes less than 15%.
Venture Capital for Cannabusinesses
Not many venture capital farms are willing to fund cannabis businesses. However, you will still be able to access some VC firms that transact with cannabis companies. You should note that taking an offer from a venture capital firm may mean giving up some equity. This means giving up complete ownership of the business. This comes with some benefits including not having to figure out the loan repayment. Below are some of the best companies that offer venture capital to cannabis business.
Casa Verde has financed a number of cannabis businesses by offering venture capital. Some of the most notable ones include Metr and Oxford Cannabinoid Technologies. They specifically invest in ancillary businesses that are affiliated to the cannabis industry. This includes offering financing for platforms that interact closely with the cannabis industry.
Tuatara Capital, L.P.
Tuatura Capital offers financing for cannabis cultivation. This includes facilitating processes such as farming, technology, processing, and research and testing.
Privateer Holdings is a VC firm that was founded in 2010 in Seattle. The firm supports cannabis progressivism by offering venture capital to marijuana businesses that cultivate and distribute cannabis. They have supported brands such as The Goodship as well as High Park Company.
Crowdfunding is a popular funding option for cannabis startups. Platforms such as Indiegogo and Kickstarter have worked with cannabis businesses and helped them to “crowdsource” for funds to support their businesses. Another newer crowdfunding platform that is dealing with cannabis businesses if StartEngine. Lately, some cannabis-centric crowdfunding platforms have emerged and are helping many cannabis businesses to raise financial support, they include CannaFundr and Fundanna.
Wrapping it Up
With all the funding options that we have listed above it is important to take a deeper look at the real problem; lack of legalization at the federal level. For as long as marijuana continues to be classified under schedule 1 of the controlled substances act, cannabis businesses will continue to have a hard time with financing. What is left for cannabis businesses is to bootstrap as much as they can and where necessary to source for funding from any of the options that are listed above.