Like any business, when you finally take the first steps to building your dream it takes one important factor to get started – cash money. In the cannabis industry, green for green can be even harder to secure as most financial institutions are federally backed. And, as we know – cannabis is still technically, federally illegal.
So, when seeking cannabis funding you’re faced with the question of – how to get financing for a marijuana business? We’ll answer that and more in our in-depth guide to everything you need to know about funding your cannabis business now.
Funding & Banking Solutions
Since the expansion of legalization has swept the Nation, Cannabiz funding has been limited. As we already mentioned, cannabis is still considered a Schedule 1 controlled substance, federally, which restricts options amongst FDIC lenders.
Luckily, the rise of advocacy groups and politicians pushing for reform for cannabis funding and banking has allowed a number of alternative and private lenders to step up to the funding plate.
Currently, existing and start-up Cannabiz entities have the availability for these types of investments through a limited number of firms:
- Private loans
- Real estate loans
- Equipment leasing or financing
- Cash advances
- Unsecured capital loans
- Working capital loans Bridge loans
- Revenue-based loans
Different Types Of Funding
Like any other business, just because you find cannabusiness financing doesn’t mean you should take the only option available. If you take the route of acquiring cannabiz funding through a well-established firm with one of the prior investment types, they’ll do the work of laying out terms for you to follow. But, in the case of you starting-up your cannabiz or re-energizing investments, turning to personal or professional investors is highly common across the cannabis industry.
With this route, to be successful in the long run you’ll want to ensure that you know the differences between main factors of investment or funding sources – like equity financing, debt investments or financing, and convertible notes or bonds.
To become more familiar with these terms, we’ve put together a simple breakdown of each.
- Equity Financing – When you choose equity financing, you’ll raise capital funds through the selling of shares to your company. This is a tactic often used by existing Cannabiz companies who need to raise money for short-term goals (like bills, or payroll). Equity financing can be used by start-ups for investment in long-term growth. This type of financing often comes from friends, family, or investors sought with networking or varied methods. With this method, you won’t have any debts to repay but are giving up a portion of your own ownership.
- Debt Investments or Financing – Debt investments or financing is used when you’re borrowing money and will be obligated to pay it back to the entity borrowed from. The upside of debt investments and financing is you’ll still be in full control of your business’ ownership, but will have a note to pay the investor back as you grow.
- Convertible Notes or Bonds – A convertible note or bond is a hybrid or combination of equity and debt financing. It’s a type of bond or loan, that the holder can later convert into shares of stock in the company, or for cash of equal value.
Understanding Cannabiz Valuations
When discussing stocks, shares, and values of ownerships, you’ve got to consider your company or business valuations. A valuation is a standard business practice that assesses an economic value to a company, in this case, your Cannabiz.
It’s necessary to determine the fair value of a business when establishing potential part ownership with partners. From the start, prior to discussing with investors or funding, you should have a full valuation estimated or completed depending on whether you’re a start-up or existing company.
Beginning your cannabiz start-up with a valuation allows you to move forward with the value of your company in mind, as you set up day-to-day operations. Know the valuation, will also allow you to strategize partnerships or expansions with a better point of view. Like setting up real-time expectations for investors to know just how much their shares will be worth moving forward. Even more, it can give you peace of mind and alleviate the anxieties of being a start-up in the pioneering industry of cannabis.
The first step in securing capital is decisively determining what that capital will be used for. The need for funds can arise at the beginning of your start-up, or overtime when you need to invest in new technology, equipment, or to expand operations. Regardless of the type of financing or funding you’ll be seeking, you’ll want to prepare a well-detailed plan with real-time information and numbers that support your case for securing capital, and being able to return it with equal value.
For most cannabiz’s, you’ll begin with seed money to get started, which often comes from friends and family, or the type of equity or debt financing previously discussed. From there, as you grow, securing capital for your operating business can be that much easier from other sources.
To be prepared in this process, you’ll want to compile a comprehensive ‘pitch deck’ that highlights the key aspects of your business, profit and future growth. According to Forbes, your pitch-deck for capital raising should include the following:
- Target or Current MarketProduct
- Amount being raised
You should also be conscious and concise of repayment terms and timelines, or how shares will be distributed in the case of equity financing.
Green for Green with Cannabis Funding
Like almost everything in the cannabis industry, sometimes you have to get a little creative in navigating through gray areas and cutting through red tape. With cannabis business loans and financing, is no different. Even though cannabusiness financing solutions aren’t as widely available as other industries, that doesn’t mean getting financed is out of reach.
Use these tips and the knowledge you gained to acquire funding for your existing or start up Cannabiz, in a method that works best for your business’ bottom-line.
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