Cannabis Funding: Can it Fund My Small Business?

With the cannabis industry growing by leaps and bounds and new states legalizing and decriminalizing the sale of cannabis for medical and recreational purposes every year, there’s never been more opportunity for cannabis small business owners than right now. Unfortunately, many would-be business owners are surprised that obtaining cannabis funding through traditional financial institutions like banks or credit unions is possible due to the legal regulations surrounding cannabis.  Today, options for cannabis funding are coming directly from commercial lenders who specialize in working with the cannabis industry, and options abound for small businesses. Cannabis funding can fund your small business if you know where to look. 

Where Can I Get Cannabis Funding?

Before we talk about where you can get cannabis funding, let’s talk about where you cannot get it.  Because cannabis is still illegal at the federal level, getting financing through a small business loan from the Small Business Administration and traditional financial institutions is nearly impossible, as financial institutions cannot legally handle capital that is connected to cannabis. Even money that is not directly tied to cannabis sales is off-limits – the federal government considers any money connected to the cannabis industry subject to money laundering regulations, which apply to banks and credit unions as well as individuals.  Banks are also subject to a regulation called the Bank Secrecy Act that requires banks to flag transactions of 5,000 dollars or more that may be associated with illegal activity, including cannabis sales. So, what’s a cannabis small business owner to do? Your best option is to use a commercial lender to finance your cannabis business. 

What Type of Funding is Available to Small Businesses?

Cannabis small business owners have several types of funding available to them, all of which fall under two main categories: debt funding and equity funding. Debt funding generally involves financing your business through either taking out loans or using a business credit card. The lender is then paid back the original loan amount plus interest. Equity funding involves offering shares of the company in exchange for capital. The investor receives their money back in the form of dividends or profit when the business is sold. Within these two categories, cannabis business loans are generally available as private loans, real estate loans, equipment leasing loans, and dispensary cash advances. The differences between these types of loans focus primarily on the length of the repayment term, interest rates, and the reason why the capital is needed.

Can Cannabis Funding Address Cash Flow Gaps for Small Businesses?

One of the best things about working with a commercial lender focused specifically on the cannabis industry is an increased understanding of the unique challenges facing cannabis small business owners. Some commercial lenders offer invoice financing, a type of loan that offers partial repayment on outstanding invoices, as an option to close the cash-flow gap. When using invoice financing, the commercial lender pays the majority of a cannabis business’s received invoice upfront. Financing fees accrue during this time until the loaned amount is paid back in full to the lender. Invoice financing is a popular option for cultivators, distributors, manufacturers, cannabis brands, and ancillary companies because it is flexible and provides consistent cash flow. 

Can Cannabis Funding Help With Inventory Concerns?

Maintaining a steady supply of inventory is critical for any business owner, and cannabis small businesses are no exception. Some commercial lenders offer inventory financing, which provides funding to pay vendors directly and receive cash-on-delivery (COD) pricing, helping you save money and grow your business. Under the inventory financing model, vendors are paid directly and interest only accrues when you use the funds, which can be borrowed for up to 90 days.

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