Now could be a great time to find cannabis investors, because the industry’s future is bright: by 2026, retail cannabis sales are projected to hit $52.6 billion annually.
Even with the high level of industry success, many investors are still hesitant to back cannabis companies. This is often due to the stringent regulations of the industry. Backing a cannabis business could be detrimental to their investment if the government finds the business out of compliance and shuts them down.
But that doesn’t mean your only option for funding is debt (but here are our tips on scoring a loan!)— attracting angel investors, venture capitalists, private equity firms, or startup accelerators is still possible. You’ll just need to learn how to put the best face forward for your cannabis business.
In this blog, we’ll tell you exactly what cannabis investors are looking for so you can position yourself as a can’t-miss cannabis business investing opportunity.
What Cannabis Investors Like
When you begin the process of attracting cannabis business investors, you’ll first want a solid understanding of what cannabis investors look for:
An experienced and qualified executive team
According to MJBiz Daily, 2 out of 3 cannabis investors say the biggest factor in their decision to invest or not is the management team’s experience, qualifications, and strengths.
A robust growth plan with attainable goals
Keeping a set of high-quality financial forecasts that are well thought out, accurate, and understandable is imperative. So is having a detailed roadmap of your goals and a plan to reach them.
Strong financial data and past performance
An investor is going to want to see that your company has performed well financially. High sales, a large customer base, and a large, underserved market are all exciting to an investor.
A realistic ROI timeline
Investors make cannabis business investments to make money. Full stop. Even if they’re passionate about your industry, if there’s no return on investment opportunity in the visible future, attracting investors is much more difficult.
Solid defensible assets
If you’re a profitable or high-performing business, other companies in your industry will try to copy you. It’s the way of the free market, and there’s no use trying to stop it. Investors love businesses with patents, proprietary processes, and other defensible assets.
Say it with us this time. “Investors invest to make money. Full stop.” They’ll want to see that your business will seamlessly grow over time, thereby increasing their likelihood of seeing a return on their investment.
What Cannabis Investors Don’t Like
A complicated business plan
It was Albert Einstein who said, “if you can’t explain something simply, you don’t understand it well enough.” If your business plan can’t be presented to cannabis business investors simply, they might think you don’t understand your business well enough to succeed.
Raising multiple rounds in quick succession
If you don’t have an airtight roadmap to take your company from where it is to where you want it to be, you’ll likely end up raising even more money in the future. This can be necessary for your business—but a glaring red flag for investors. Why? Share dilution. As you begin to sell more of your company’s equity at different valuations, the equity already purchased becomes worth less overall.
Disorganized or inexperienced founders
It’s a statistic important enough to mention twice: 2 out of every 3 cannabis business investors say their most important factor is the experience of the founding team. Regardless of your time in the industry, you’ll need to prove you’re qualified to grow your company.
No long-term plans to back your goals
While every company has goals, very few have concrete, actionable steps to hit those goals. Without a solid plan of action, many cannabis business investors will decline to invest before you’ve even had a chance to state your case.
Impractical or grandiose financial projections or valuation
If you’re an avid Shark Tank watcher, you’ve seen Mark Cuban or Mr. Wonderful chastise a company for an inflated valuation. A too-high early valuation means the investor will need your company to go through massive, transformative growth just to make their money back.
Our Top-10 Tips for Attracting Cannabis Investors
1. Focus on sustainable growth:
Often in the news, we see companies (like Carvana) that skyrocketed in growth without a solid foundation. The first time they encounter any market turbulence, the cracks left by their too-fast growth cause them to crumble. Investors might be attracted by a flashy idea—but it’s much more likely they’ll want to back companies that have scaled successfully.
2. Keep detailed financial records:
You’ll never encounter a cannabis business investor that isn’t interested in your financials. Make sure you have systems and processes in place to give an accurate portrayal of your finances and KPIs whenever asked.
3. Think about aesthetics:
Sloppy, poorly executed documents and presentations can harm your company’s legitimacy. Only present thorough, professional-looking reports that cover the most important information succinctly.
4. Develop your management team:
You’ll need to ensure your team works together easily, is aligned on goals and strategy, and has sufficient experiences to take your company to the next level. Consider hiring a consultant, sending your executives to training, or investing in higher learning resources.
5. Time your capital raise appropriately:
You might think your company needs capital NOW—and you might be right—but is a capital raise in your company’s best interest? Your timing should be based on past performance, cash flow projections, market volatility, and your long term plans. Taking money earlier than you should will negatively impact your valuation and could be detrimental.
6. Understand your market:
Many investors already avoid cannabis investing because of stigma and known compliance nightmares. However, that doesn’t mean you won’t have the opportunity to highlight the value of your market—but to do that, you’ll need to understand it. Be prepared to give a detailed explanation of the cannabis industry, its historical performance and objective projections, and extensive buyer persona research.
7. Be transparent
Any skeletons hiding in your closet or secrets you’ve swept under the rug will come out in due diligence—guaranteed. Our best advice? Don’t try to hide it. Be open about your failures. Talk about what you learned from them. Show how you’ve corrected your mistakes. That will go a long way towards building trust with potential investors.
8. Think strategically
It’s up to you to decide the direction of your cannabis business, so ask yourself: Where is your company headed? Once you know the answer, you can make strategic decisions to help you get there. Being able to show your investors you have a solid, all-encompassing gameplan can eliminate investor doubts.
9. Connect and network
Make no mistake: attracting investors is simply selling your company’s equity. And, as with any sales strategy, it’s much easier to close if you have a warm lead. Sometimes, the easiest way to attract cannabis investors is to lean on your professional network—which means you need to nurture it. Attend networking events, keep in contact with industry colleagues, and make sure you have a good reputation your network feels comfortable recommending.
10. Be realistic and reasonable
You don’t need to be the next AirBNB or Uber to get investments. Cannabis business investors understand that the vast majority of companies they invest in have a cap on their growth. When you’re pitching an investor, don’t overhype your company. Keep it realistic, be reasonable about your future, and let the growth of businesses in the cannabis industry speak for itself.
Key Takeaways About Attracting Cannabis Business Investors
In this blog, we’ve highlighted the necessity of building a strong, trustworthy team; keeping immaculate financial records; and being realistic about your goals and how you’ll achieve them to the satisfaction of prospective investors.
But we know…it’s easier said than done.
If you’re ready to begin the process of inviting cannabis investors to take a look at your business, give GreenGrowth a call. Our financial experts are uniquely qualified to help you put your best foot forward and attract capital to help you grow your green.
We’d love to be on your team! Schedule your free consultation today.