Transitioning into the Green Market
Starting a marijuana business in the US has never been easier. A recent shift in federal regulations has made it possible for investors to invest in cannabis-related ventures. However, even with the easing of federal regulations and increasing state legalizations, marijuana businesses are still considered high-risk and are not serviced by traditional banks and lenders. However, understanding how to fund your marijuana business purchase will ensure a smoother and more successful entrance into the green market.
Conventional Financing Options
There are a few traditional financing options that may be an option for your marijuana business purchase. These options include Small Business Administration (SBA) loans, Community Development Financial Institutions (CDFIs), and credit unions. Each of these financing options has its own list of perks and drawbacks.
SBA loans are a common option for conventional financing since the federal government provides a partial guarantee for the loan. This guarantee results in lower interest rates and easier eligibility requirements. However, the SBA mandates that the marijuana business should not derive any revenue from direct sales to consumers. This mandate limits the types of cannabis-related businesses that can obtain financing.
CDFIs will lend money to any cannabis-related businesses, including marijuana growers, dispensaries, license holders, and ancillary businesses if they meet certain eligibility criteria. These criteria may include the local community’s economic development goals and specific industry regulations. Accion, a non-profit organization, is an example of a CDFI that has recently included cannabis-related businesses in their lending programs.
Credit unions and local banks in areas with supportive medical or recreational programs may lend modestly to cannabis-related businesses. Although, given the high-risk nature of the cannabis industry, these financers will still require an aggressive compliance policy and high due diligence.
Alternative Financing Options
Alternative financing options have played a significant role in funding cannabis startups, especially since traditional financing resources are limited. Besides traditional financing institutions, alternative financing avenues include non-bank online lenders, crowdfunding sites, and equipment leasing and financing programs.
Online lenders, such as Kabbage and OnDeck, have relaxed the requirements and provide short-term loans, lines of credit, and cash advances to businesses such as dispensaries, cultivators, and product manufacturers. Kabbage has approved over $2 billion in small business loans to the cannabis industry.
Crowdfunding platforms such as Fundanna and Microventures have specialized cannabis crowdfunding portals that can allow you to raise equity and crowdfunding loans.
Equipment financing companies are also an option. These companies will work with marijuana-related businesses looking to expand their operations by offering leasing and financing options for equipment used in the cannabis life cycle. Komgo has helped over 5,000 businesses acquire technology and other equipment. Companies like Innovative Industrial Properties (IIPR) are real estate investment trusts (REIT), which a growing number of marijuana businesses are utilizing. These REITs provide financing for grow-ops and dispensaries.
Cash-Based Transactions
There is no doubt that having liquid cash makes purchasing a cannabis business an easier process. Although, cash-based transactions come with a litany of risks including theft and fraud. Experts suggest that businesses should consider an insurance policy to help mitigate any potential loss due to theft.
For businesses who have limited financing options, private equity and angel investors may also be viable options. Investors who believe in the potential for long-term returns will provide funds in exchange for equity.
The Future of Cannabis Financing
As more state marijuana programs continue to gain traction, more financing opportunities are expected to emerge. Critics speculate that allowing cannabis businesses to operate as traditional industries would allow for more predictable tax revenue flow and eliminate an immense portion of the black market. Discover additional information about the subject in this external source we’ve carefully selected for you. cannabis store for Sale, access valuable and complementary information that will enrich your understanding of the subject.
In the meantime, businesses should continue to pay attention to the legal and regulatory developments that may impact financing options for their cannabis-related businesses. As the industry continues to grow and mature, we expect traditional banking solutions to emerge.
Interested in learning more about the subject discussed in this article? Visit the related posts we’ve specially selected: