It is very challenging to manage finances in any business, especially when it comes to small businesses. Financing for the cannabis industry is much harder to secure because of the complex regulations associated with this industry; most transactions have to be made in cash.
Despite all these difficulties, many owners have found circumventions. Still, there is a lot of perplexity about cannabis business financing.
If you are thinking of starting a weed business, go ahead, you have many better options than stashing cash under your mattress. It’s all about the understanding of the legal framework under which you are working and finding businesses that have arisen to solve their own financial problems.
Financing Options for Weed Businesses
Just like other business types, you have many financing options for your weed or cannabis business. Your options include debt financing and equity financing. Most of the options are from alternative lenders, venture capital firms that specialize in cannabis investments, and niche companies that have created platforms to solve cannabis industry-specific problems.
Legal Challenges in Cannabis Business Financing
The main issue with financing a cannabis business is in the complexity of the legal system.
As a refresher, in the United States, marijuana is illegal at the federal level. Still, it is legally approved for recreational use in many states and Washington, D.C., and decriminalized in many others. This trend of decriminalization means the market is prime for those looking to start weed businesses. However, challenges still arise from the fact that the federal government hasn’t given weed business the green light.
Obstacles in Cannabis Business Financing
Banks typically don’t provide loans to cannabis ventures especially, those directly involved with the plant or its derivatives. This has to do with the Federal Deposit Insurance Corporation (FDIC). Generally, the FDIC will not insure a bank that takes on “existential” risks, which include loans to companies in violation of federal law. Besides that, some banks are willing to consider financing options that invest in cannabis-related businesses that avoid legal risk.
Business funding for cannabis companies before recreational marijuana legalization happens is a concern for banks. The banks themselves would avoid criminal blameworthiness for aiding and abetting activities still considered violations under federal law. Knowingly accepting deposits from a cannabis business can be regarded as money laundering, although this has mostly not been implemented. The Department of Justice tolerates weed businesses in states where it is legal, but that is subject to change with the political situation unless the government legalizes marijuana at the federal level.
Most banks are under the federal government. Since the government considers transactions related to cannabis business as criminal activity, federally chartered banks can not deal with weed business money.
The arguments that the money is for personal use would not stand. This is because technically and legally, the bank is subject to money laundering laws. If a bank is accused of money laundering, they will be subject to hefty punishments.
The legalities related to money laundering are complex. This means that your local bank branch would not open any accounts for you if you are in the cannabis business. You would not be able to take out loans, credit cards, or any other financial products through these institutions, either.
Tips to Overcome Obstacles
If you are interested in the cannabis business, you have to find a loophole in the legal complexities. A regulatory advocate who is expert in emerging regulatory issues, including those related to cannabis, says:
The key to high-risk areas and banking relationships is to have a strong compliance program and transparency. Independent compliance audits of the company, either by a third party or someone not actively involved in your compliance management system, will add to the trust the bank has with the company.
Alternative Funding Options for Pot Business Financing
Alternatives are not always ideal as they tend to be less stable than banks. But because these platforms are not regulated by the federal government or FDIC-insured, they are not constrained to follow the same laws as banks. The financing option that is best for you depends mainly on the growth stage you are in.
Crowdfunding is a popular option for startups. Crowdfunding is the utilization of limited quantities of capital from an enormous number of people to back another undertaking.
It utilizes huge systems of individuals through internet-based life and crowdfunding sites to unite speculators and business visionaries, and can possibly build enterprise by growing the pool of financial specialists from whom assets can be raised past the customary hover of proprietors, family members, and investors.
The best part about crowdfunding is that organizations accept the cash as a propelled booking of the item. This implies the raising money people get their items when the organization finishes the creation. On the off chance that the organization doesn’t arrive at its objective, the stage will restore all the cash to all the store raisers through a computerized framework.
Some crowdfunding sites including Indiegogo, Kickstarter, Fundable, and Patreon.
There are a few marijuana-specific platforms out there, including Juicy Fields (Germany), CannaFundr and Fundanna.
What makes Crowdfunding a progressively worthwhile approach to get assets rather than speculation or value subsidizing, is the grounds that a great many people will effortlessly give for advance booking of the items that the startup produces.
Funding with debit or credit cards is trickier method equity funding, but alternative lenders and other financial platforms have enabled the cannabis business to secure financing.
- ONLINE LENDERS: Since traditional financing institutions are not willing to work with the cannabis business, many online lenders are open for their financing. Online lenders offer short-term options such as working capital or lines of credit with a quick retraction. But keep in mind that all online lenders are not willing to associate with the industry, so shop around and ask experts. Also, these lenders don’t give out credit cards.
- DEBIT SYSTEM: you would not be able to use a credit card for your cannabis business. But there is a unique debit system available through can pay, which allows the businesses to accept payments from customers who also use the platform. Can pay is separate from the banking system so that transactions can be done through it, but the security of money is not guaranteed. Still, it is more secure than carrying cash.
- POINT OF SALE SYSTEMS: One option is Green Bits, which assists you to manage all dimensions of sales processes. This platform includes state law combination and integration so you can be sure you’re staying acquiescent, integration with other apps, and capacities that help you easily manage your customers.
LeafLogix can help growers distributors and processors to manage day-to-day finances. No matter which part of the supply chain you handle, LeafLogix probably has the capabilities to help you manage and track your daily operation.
As the cannabis industry is emerging, equity funding is frequently used these days. There are many options for equity funding.
- VENTURE CAPITAL: If you are beyond the seed funding stage, you can try it. These include Snoop Dogg’s Casa Verde Capital.
- ANGEL INVESTORS: You can easily find an angle investor by searching, angle list who are interested in investing in the cannabis business. Cannabis industry meetups and conventions also exist, just attend some of them and see who contacts you.