The cannabis Industry generated a good amount of revenue in 2017 and 2018. Some estimated that the market was between about $9-$18 billion and they expect that it will double by 2020. The marijuana business is booming and this sector is expected to grow exponentially, while this sounds like an attractive opportunity, many of the most qualified people are locked out of the market, because they cannot afford to stake out their own claim. As most of you know one of the most important factors when starting a new business is finances. Without adequate financing your business could hit the ground before you have had a chance to really implement a business plan.
The most difficult part about procuring adequate finances for a marijuana business is the fact that traditional lenders will not finance your business. Other businesses even ones with a rate of return much lower than marijuana will secure financing before your marijuana business. The main problem with lending in the marijuana industry is the fact that it is still federally illegal. Michigan has legalized marijuana medically and recreationally, however, traditional banks and lenders in the state still will not lend a hand to your marijuana business. If you are looking for a way to secure a capital contribution/investment to start your marijuana business you are reading the right article. This article will explore the financing options available to the still infantile marijuana market and how you can secure funding in a national banking system that does not support marijuana.
Obtaining funds for any business, most of all marijuana businesses can be an incredibly difficult task. You need to find a lender that offers you a rate that you are able to pay and a loan of the right amount. This is difficult since lenders, even those in the marijuana industry consider, marijuana businesses high risk. However, as the marijuana industry becomes more prevalent and regulated loans and investment opportunities should become more viable and easier to secure.
Options for funding cannabis businesses are limited but there are options. Whether you are a marijuana grower, provisioning center, processor, tester, or transporter you need funds to start your business. This article will explore the following funding options available to you currently in the cannabis industry.
- Cannabis Commercial Real Estate Loans
- Cannabis Leasing Equipment Loans
- Hard Money Loans
- Cannabis Business and Startup Loans
Cannabis Business and Startup Loans.
A cannabis business and startup loan is exactly what it sounds like, a loan that helps you start up your business. However, since the marijuana industry is still federally illegal, you cannot go to your local bank and take out a cannabis loan. This means you will have to work with companies that already work in the cannabis industry. These companies that are already lending in the cannabis industry set the market for what a start up loan can look like. In order to secure the most amount of financing from these lenders and private investors you need to have a very well put together pitch, by this we mean a legitimate business plan, and real figures based on estimated sales and costs. You will also need to demonstrate that not only are you capable of holding the marijuana business license you are applying for, but also you are in the process of completing the applications necessary for those licenses. If you pitch your business correctly you could secure the financing necessary to open your business.
Hard Money Loans
Hard Money is a short-term bridge loan. Usually, hard money loans are secured by real property. Hard money loans typically have higher interest rates than traditional business loans, because they usually involve higher risk and a shorter repayment period. Additionally, hard money loans are issued by private lenders or investors they are able to be used by marijuana business owners. The benefits of a hard money loan when compared to traditional loans is the speed with which they can be issued, where traditional loans would take weeks or months to get set up, a hard money loan can be approved in a matter of days. A short turnaround time is important in the marijuana industry because with a marijuana business securing financing especially during the application process is necessary to get your business licensed. This option is good if you cannot secure any other means of financing.
Cannabis Real Estate Loans
For those marijuana business owners who can afford to self finance the operation but need help with purchasing, leasing, or building out an existing property cannabis real estate loans offer a viable avenue for funding. Private real estate money lenders will support you by offering the capital investment you need to get your business a physical location or the construction funds necessary to get your business started. Cannabis business owners could also use real estate loans to acquire start up capital if the lender agrees to such an agreement.
There are many cannabis real estate lenders that offer a diverse and creative investment strategies for your marijuana business. It is up to the business owners to choose right investor for their business. There are even real estate lenders in the cannabis industry that have tried to replicate the traditional real estate loan, and offer you a loan, secured by assets and title to the property in exchange for their lending you the capital you need. However, the cannabis industry is still new in Michigan and while such real estate loans carry a high interest rate now, as the risk goes down so should the rates, making this option much more realistic for many more prospective marijuana business owners.
Cannabis Equipment Leasing
Cannabis equipment leasing loans are loans that give marijuana business owner the option to purchase any type of equipment essential for their business. Especially in marijuana grow and processor facilities, your business will need equipment in order to generate income. While the red tape around lending to marijuana businesses is still in play, equipment financing loans allow you to utilize lender capital to secure the machinery, equipment, and supplies necessary to get your business up and running. As with other loans discussed, the risk involved typically means that this type of financing will involve a high interest rate. Funds made available through private lenders or investors and are available to cannabis growers, extracting companies, medical dispensaries, and seed producers so they can obtain high-quality equipment for their business.
Marijuana is still considered illegal on the federal level, as such traditional financing methods are not available to prospective and current marijuana business owners. Alternative lenders are a solution to the problem of finance in the cannabis industry. The above discussed methods are some of the best options available in the current marijuana market. They allow you as a marijuana business owner to secure financing for whatever your goal is and more importantly whatever stage of your business plan you are in. As with securing investments and loans with any other business make sure to do your due diligence and shop around, so that you ensure you are receiving the best possible deal for your marijuana business.