Financing any business isn’t a walk in the park. And it’s even harder for a business that’s considered high-risk, such as a marijuana dispensary.
The primary reason behind the difficulty in securing funds for marijuana-based businesses is the complex legal status around the cultivation, sale, and use of marijuana. Even if you reside in a state or country where marijuana is approved for medical and recreational use, your potential financiers might still have a million reasons to not fund your venture.
The nagging fear remains that authorities in your state might wake up one day and criminalize weed, or that the federal government may change course and take action against the state-legal cannabis industry. And that could deal a heavy blow to your business. However, with a growing list of research pointing to the potential medicinal properties of cannabis, we can expect the trend towards decriminalizing weed to continue.
But still, very few financiers will loan you funds to jumpstart your marijuana dispensary. As an astute entrepreneur, you must know where to look, and that will be the focus of this post.
What Is The Current Legal Status of Marijuana?
Marijuana is illegal under federal law, and that fact alone makes most lenders shy away from offering their services to cannabis-based businesses. Federally chartered banks risk losing their federal banking charter by lending to the cannabis industry.
Some banks are even apprehensive about opening checking or savings accounts for marijuana dispensaries, though more than a few banks here in Michigan openly accept cannabis business bank accounts. With that said, we will look at five non-traditional ways that you can finance a marijuana dispensary project.
Top 5 Ways to Finance Marijuana Dispensaries
Using Your Credit Cards
One of the easiest ways to secure funding for your marijuana dispensary is by using your business credit cards. You can use your credit cards to perform various functions, including paying for startup expenses like buying auto-flowering seeds, and meeting the recurring expenditures in your business.
Credit card borrowing is ideal where you frequently use your credit cards to complete most of your business transactions. The lender will only need to check your credit score. And even if you have a poor credit score, you may still be considered for secured or unsecured credit cards, albeit for a lower credit limit and higher interest rates.
Crowdfunding involves raising funds for your marijuana dispensary by seeking small donations from a large number of people. One of the best things about crowdfunding is that it works well online. Therefore, there are fewer logistical hassles involved.
All you need to do is ensure that the company that you choose allows cannabis-based businesses to crowdfund on their platform. This alone can be a tall order but there are cannabis crowdfunding sites in the works and a couple already in operating—CannaFundr and Fundanna. Also, be sure to check that there are no hidden fees involved.
The growing popularity of cannabis-based products has piqued the interest of angel investors. An angel investor is simply a wealthy individual who is able and willing to fund a project with the hope that the venture will one day grow into a leading global brand.
It’s a give and take arrangement where the investor injects a substantial amount of capital investment into your project in return for equity. In this case, a stake in your marijuana dispensary. There are numerous sites where you can look for an angel investor, including the ArcView Group as well as AngelList, though business owners tend to have the best luck within their own personal network. While Arcview is dedicated to the cannabis industry, AngelList has a section that’s dedicated to marijuana startups looking for angel inestors.
Venture capital is classified along with crowdfunding and angel investment among the top ways to get equity funding. In venture capital, an investor (known as a venture capitalist) finances a budding enterprise, with the hope that the business will grow swiftly.
And just like angel investment and crowdfunding, you should target venture capitalists that focus on cannabis startups. Examples of such firms include the Casa Verde Capital by Snoop Dogg. And as you shall find out, most of these venture capitalists are owned or run by celebrities that have publicly endorsed marijuana use, and in many cases, are long time cannabis users.
One of the best things about online lenders is that unlike traditional financing institutions, these lenders don’t shy away from working with cannabis-based companies. That’s because they aren’t heavily affected by federal government regulations and oftentimes will structure the loans as personal loans to individuals, as opposed to loans directly to cannabis businesses.
For instance, unlike banks, online lenders don’t need to report to the Treasury Department’s Financial Crimes Enforcement Network. That makes their lending services more accessible to cannabis businesses. There’s only one little drawback – most of these lenders offer short-term loan options with a quick turnaround and high interest rates. Examples of online lenders include United Capital Source, Kabbage, and Fast Capital.
So there’s our rundown of 5 ways to finance your marijuana dispensary. If you’ve always desired to start a marijuana business but couldn’t locate a viable lender, why not jumpstart your business by trying out one of these options?
Mr. Roberts is the founder and managing member of Scott Roberts Law, a Detroit-based Cannabis Business Law Firm founded in 2014. Scott has spent his entire career representing businesses and helping them comply with municipal, state and local regulations, as well as assisting on transactional corporate and real estate matters. Scott is an accomplished attorney, author and public speaker, having spoke at CannaCon, Cannabis Industrial Marketplace, CannabisAid, and 420 Canna Expo, to name a few. He has also taught Continuing Legal Education on Marijuana business matters, meaning other attorneys see him speak to learn about the nuances of cannabis business law.