Starting your Cannabis Business

Broadly speaking, there are two ways to get capital for a new business: debt and equity.

• Debt
  • This requires taking out a loan that you have to repay over time (usually with some interest).
  • Debt lenders have a fairly straightforward application process requiring items such as a credit score, character, capacity to repay, cash flow and collateral.

• Equity
  • By offering equity, you’re selling a piece of the company and trading a degree of ownership for cash.
  • Investors often ask for a formal pitch and want to understand your leadership team, product details, market size, and competition.
  • If you show that you’ve gone through your state’s proper licensing and permit procedures, while maintaining immaculate records, your chances of working with an equity investor will increase.

Though there aren’t many traditional funding sources open to a cannabis business, crowdfunding is still an option. The SEC allows anyone to invest $2,000 in small businesses in exchange for a stake. Companies can raise up to $1 million through crowdfunding sources. Check out Fundanna, CannaFundr, and 420fundme.

Traditional banks often can’t offer your cannabis business a loan, but there are other investors who will invest if you can show a solid ROI (return on investment). These general rules will help your chances:

• In operation for at least six months
• Incorporate as an LLC, limited company or S corporation
• Have a personal credit score of at least 500
• No criminal record
• Pass a background check
• Gross monthly sales of at least $10,000 (alternately, if you’re a start-up, be able to demonstrate how your business will be able to have a certain level of monthly sales)
• Have a business plan
• Have a business bank account

Look for venture capital funds that are familiar with the industry. Research Privateer Holdings, which has raised more than $100M to fund legal marijuana businesses. Others include Tuatara Capital, MedMen Capital, and Snoop Dogg’s Casa Verde.

Online loan companies have an easier time lending than traditional banks. Do some research to see if an online loan company can legally extend a loan to a cannabis company (as regulations will vary by state). Online loans often have an easier application process, lower interest rates, and higher approval rates.