Cannabis Knowledge & Insights

Get Your Money Right: Keys to Landing a Cannabis Credit Line

At every level of today’s cannabis industry, accessing the capital necessary to grow your business is one of the most consistently frustrating obstacles operators face. For the big multi-state players, private equity deals often cost you an arm and a leg, and being blocked from listing on US exchanges makes going public additionally complex and risky. Local and mid-size cannabis operators are denied all but the most basic banking relationships, making simple business loans nearly unattainable. And it goes without saying, you can forget about getting access to Federal SBA loans or help from COVID-19 relief programs.

As accounting and financial professionals serving the cannabis industry, we see these issues emerge all the time. We are often called on by clients to provide guidance and support efforts to raise capital. Our approach is two-fold, the first step is to clean-up our clients’ accounting and finance so we can produce accurate and timely balance sheets, projections, P&L statements, historical records, etc. Once that is complete, we reach out to our trusted network of lenders to make introductions and serve as the liaison helping facilitate the loan/capital raise.

We recently celebrated a win with one of our Outsourced CFO clients by helping them close a credit line with a relatively new player in the cannabis funding business: Bespoke Financial. In the following, we’ll describe the issues our client was facing and how we were able to help them clean up their financials to ultimately earn the confidence (and the funding) from Bespoke Financial.

Case Study: California Distributor In Need of Supply

All cannabis operators know that this industry is one of the most capital-intensive environments imaginable. Nearly every aspect of the industry, from the heavy regulatory burden, punishing tax regimes, competitive hiring and talent acquisition, to the legal risks and initial costs to build out or maintain a cannabis operation — all require major capital. 

In this instance, our client was a distributor in California that had been in operation for just over a year and was doing around $1 million in business per month. While the revenue was positive, the quick turnover required constant re-upping on inventory. The distribution game is necessarily reliant on large, initial outlays of capital and a sales cycle that can last weeks if not months before you start seeing returns.

Our client was already a client of Bespoke Financial and had secured a $450,000 Inventory Financing revolving line of credit. Our team of cannabis CPAs and advisors was called in to help the client after this credit line had been paused for nearly six months, putting them in a very tight bind.

Problem Meets Solution

Before engaging GreenGrowth CPAs, the California distributor was relying on a part-time bookkeeper to manage their finances. To continue receiving credit from Bespoke Financial the client needed to produce consistent monthly financial reports. Unfortunately, the client’s financials were wildly inconsistent and showed huge profit and loss swings from month-to-month.

Our team was brought on to get control of the client’s financial reporting and deliver the consistency and transparency required by the lender. The situation we found was all too common in the cannabis industry. Many operators, even relatively sophisticated high revenue businesses, simply do not have the resources or internal knowledge to produce proper financial reports. 

In this instance, the part-time bookkeeper was not following best practices and appeared to be putting minimal effort into the job. As we reviewed the client’s financials, we found numerous inconsistencies in journal entries. When questioned, the client had no answer for those issues, but we knew the IRS would be even less satisfied with those non-answers. All of these were clues a bigger, fundamental issue was at play. 

As we dug deeper into the financials we discovered that the bank statement and QuickBooks did not match. Instead of going back and reconciling the differences, the bookkeeper simply posted journal entries that matched the bank statement and moved on. As a result, the financial statements provided to Bespoke Financial were inconsistent and inaccurate.

Typically in an Outsourced CFO engagement like this, we are primarily concerned with establishing sound financial reporting moving forward, and aren’t often called on to remediate previous errors. But in this case, the issues were so egregious that we sought, and got, the green light to go back and clean-up the historical books. 

And once we did, the gravity of the situation became even more serious. Not only were the journal entries inaccurate but we found missing sales, missing expenses, and missed opportunities for tax deductions.

For an experienced cannabis CPA firm, these kinds of issues are not unexpected. So we got to work, doing what we do. We restructured their finance function to provide core sales and operational data, assessed and optimized their tax position to ease compliance and provide tax projections, and improved bookkeeping and reporting processes so they could produce the necessary financial reports and were protected in the event of an audit. 

New Capital Raise Options in the Cannabis Market

In our interactions with cannabis operators we often find that business leaders have an, understandably, incomplete knowledge of the types of capital available to them. The federal risks of banking a cannabis business have kept all the largest banking institutions on the sidelines, and many lenders have followed suit. 

As a result, most cannabis operators think of capital raises in terms of the common dilutive equity options: Angel Investors, Venture Capital and Private Equity. All of these require giving up a significant stake of your company to access the capital you need to grow.

But for operating businesses able to pay back loans, a new breed of (traditional) debt financing providers are emerging to fill the void as banks and other financial institutions remain on the sidelines. A leader of this pack is Bespoke Financial, which offers a selection of short-term financing options, including:

  • Lines of Credit – Revolving lines of credit that allow you to draw down capital as needs require
  • Inventory Financing – Direct vendor payments so you enjoy cash-on-delivery terms with 120 day terms from the lender
  • Purchase Money Financing – Credit advances to cover purchases of raw materials to fulfill Purchase Orders
  • Invoice Financing – Advances on accounts receivable notices

Depending on your cannabis operation, debt financing is an excellent option to avoid the complications of long cashflow collection cycles and/or the all too common irregular collections on invoices.

The only catch to working with a qualified lender like Bespoke Financial is you must have a sophisticated enough finance function to meet their initial and ongoing financial reporting requirements.

To attain a credit line with Bespoke Financial, an operator must provide a qualified:

  • Balance Sheet
  • Quarterly Income Statement
  • Quarterly A/R Detailed Aging Report
  • Quarterly A/P Aging Summary Report
  • Quarterly Metrc “Transfer Report” 
  • Bank statements

In the instance this article is based on, the client needed to produce the following reports to maintain their revolving credit line:

  • Balance Sheet 
  • Monthly Income Statement
  • Aging AR Summary Report
  • Aging AP Summary Report  

Without a functional financial system these reports are not possible, making access to the capital needed to grow a business nearly impossible to attain. 

Bringing Home the Bacon

Upon engaging with our distributor client, we were assessed on the situation with Bespoke Financial and immediately reached out to the lender to fully understand the issue from both sides, and launch steps to directly address the problem. 

The result was open and clear communication with all parties involved. Upon updating and correcting the client’s financial reports, Bespoke Financial was happy to reopen the line of credit and get our client back into business.

Our client was deeply appreciative of our ability to help them get on the right path financially. The silver lining to the whole project was that not only did the client gain access to the capital they needed, but by having a functional finance system they are now receiving valuable monthly reports that provide an inside look into their sales and operations. Plus, they get quarterly tax projections so they can manage their cash and attain tax compliance more efficiently.

In the end, having a powerful finance function that delivers the information you need is the hallmark of a successful business. GreenGrowth CPAs is the cannabis industry’s leading provider of Outsourced CFO services, which deliver all we’ve discussed here and more. 

If you need assistance or support cleaning up or establishing a solid financial function,  contact our team at GreenGrowth CPAs at +1-800-674-9050 or on our website at