Here in the U.S., cannabis is still considered a schedule 1 drug and banned at the federal level. No news flash there.
And while there is a bill on the floor to legalize at a federal level, it’s stalled out at the moment.
As such, it is nearly impossible for federal financial institutions to give loans to cannabis entrepreneurs. So how do you fund your cannabis business if you’re not currently wealthy or well-connected?
Three Ways to Fund Your Cannabis Business
There are ALWAYS ways (insert sinister music here). Suffice it to say, we’ll only cover three completely legal methods here.
If you have friends or family members that are well hooked up and believe in your vision, this could be a solid route. It’s important that you procure the employ of a law firm though so you can create a legally binding contract that holds everyone accountable. Otherwise, those family gatherings could get ugly (or uglier, as it were).
You could also apply for a personal loan free of family and friends through a lending institute. This is only viable if you have a solid credit score and you provide full disclosure to the lender of your intention for the funds.
Here in 2021, crowdfunding is one of the more innovative ways to get funding for a cannabis business. You could even say it’s trending. We won’t though.
With crowdfunding, an array of folks give you a small amount of money to fund your business. You’re not required to give away equity in return. And you don’t have to return the money they invest – though it helps to offer free products, “merch”, and other special services.
Cannabis-specific crowdfunding platforms are a great place to start. These sites gather great minds in the hemp and cannabis industries who are hungry to help new cannabis business entrepreneurs.
Seeking investors is still a tried and true method to fund your cannabis business. Especially these days with cannabis industry growth soaring. Investors are eager to get involved.
If you’ve got a solid business plan in place, take advantage of cannabis-related events to meet investors and prove your savvy. If staying home is more your jam these days (and we DO understand), you can find groups on platforms like LinkedIn and Facebook loaded with potential investors.
These investors may be extremely wealthy venture capitalists who provide capital in exchange for equity. Or they may be angel investors who have less to invest, but act more as silent partners who will help you get your business started.
Then there is a potential fourth option…
Wait for the SAFE Banking Act to Pass
There are recent legislative developments suggesting that the antiquated policy of prohibiting financial institutions from lending to cannabis ventures could be going the way of the dinosaurs.
In June, the U.S. House of Representatives overwhelmingly (by a margin of 321-101) passed a bill that would no longer prohibit federal banking regulators from penalizing institutions that provide banking services to legitimate cannabis businesses.
Known as the Secure and Fair Enforcement (SAFE) Banking Act, it also aims to reduce the riskiness of running a cannabis business. Because there is a lack of credit cards, loans, and deposit accounts, everything must be done in cash. And this has made the industry a target for more violent crimes.
As such, the U.S. has fallen behind Canada and Mexico in production and innovation in the cannabis industry. There is a clear need for fair and secure financing within the industry.
The potential of the SAFE Banking Act is promising. Yet it still needs to be ratified by the more conservative (though now Democrat majority) Senate later this year. And even if if it does pass, you’re looking at least a year or two before the bill moves forward.
Still, it might be worth the wait.
Eager to Start a Cannabis Business?
As tough as it can be to get the capital to fund your cannabis business, it is a thriving industry that currently promises only growth.
Be sure that a strong cannabis marketing strategy is part of your business plan though.
Contact us today to see how we can put our years of experience and expertise as cannabis marketing specialists to work for you. It could make all the difference.