Whether you’re an entrepreneur or an opportunistic marijuana enthusiast, starting a cannabis business is a fantastic idea.
As time goes on, marijuana legalization is growing throughout the states and more people are beginning to use it. While tons of cannabis stores and dispensaries are cropping up, there’s also a growing demand for growers, manufacturers, and ancillary services including everything from cannabis packaging firms to cannabis accountants.
However, getting involved in the cannabis industry comes with some unique challenges, including getting a business loan. Since cannabis is still classed as federally illegal in the U.S., getting a business loan can be tough for many cannabis businesses. However, there are many alternative options you can consider.
Here’s a guide on cannabis business loans and funding for your cannabis business.
Getting Cannabis Business Loans
The United States is one of the world’s biggest markets for marijuana. Medical marijuana is now legal in 33 U.S. states while adult use is legal in 11, as well as Washington D.C. Marijuana businesses in the United States also have huge potential for growth as marijuana legalization becomes more widespread. However, getting a business loan for a marijuana business in the U.S. is an obstacle.
While marijuana is legal in certain states, it’s still illegal on a federal level. These complex laws mean that banks are unable to give out business loans for marijuana businesses. Banks often fear that providing funding for cannabis businesses and even ancillary services can result in federal prosecution.
These laws may become more relaxed as time goes on, especially as the country is moving more and more towards legalization. However, for now, cannabis businesses should avoid going to banks for loans and instead look into alternative methods of funding.
Cannabis businesses in Canada may have an easier time getting funding as marijuana is legal throughout the country. However, it can still vary from province-to-province and bank-to-bank. You may also have an easier time getting funding if your business focuses on hemp rather than marijuana.
Getting CBD Business Loans
The CBD industry is closely related to the cannabis industry. CBD is a non-psychoactive chemical found in cannabis plants which many consumers use as a natural supplement. However, many CBD products are now made with hemp, which puts them in a legal gray area.
While cannabis is still classed as a Schedule I substance, hemp products are federally legal thanks to the 2018 Farm Bill. As such, there’s been a huge increase in CBD businesses that use hemp extracts. These products are legal across the United States, although there are still some complexities and the FDA is currently reviewing how to regulate them.
You may find it easier to get loans for a CBD business since it’s technically legal. However, many banks may still avoid getting involved in CBD businesses, especially as changing regulations and differing state laws could affect its legal status. As such, entrepreneurs with startups in the CBD industry may also want to seek out alternative methods of funding.
Funding Your Marijuana Business Through Investors
While traditional bank loans may be off the table for many marijuana businesses, that doesn’t mean you can’t seek funding. Since it’s such a fast-growing industry, there are many investors eagerly seeking marijuana businesses to invest in.
You can find marijuana business investors in many ways. You may want to check out cannabis business directories, many of which can connect you with interested investors. You should also network through LinkedIn and other social network platforms – getting involved in cannabis groups can be a great way to find potential investors for your business.
There are also many cannabis business events where you can meet investors. Make sure you have an ironclad business plan for your business as well as a great pitch to give to investors. Meeting investors face-to-face is a fantastic opportunity to find people to fund your business.
You can also reach out to venture capital firms. These are firms that give funding to startups in exchange for equity in the business. There are many venture capital firms dedicated to the cannabis industry. Venture capital firms are extremely helpful for any startups looking for funding.
Crowdfunding Your Cannabis Business
One of the most innovative and popular ways to fund a startup today is through crowdfunding. Crowdfunding involves getting small investments from a wide range of people. However, unlike traditional investing, you won’t have to give away any equity in your business or pay them back.
Some businesses turn to traditional crowdfunding sites like Kickstarter. You can create a campaign page for your business to get people interested in funding it. While you don’t have to pay your funders back, it does help to offer some kind of incentives, such as free products, merchandise, services or special memberships.
You may also want to check out crowdfunding sites dedicated specifically to the cannabis industry. These bring together people who are enthusiastic about investing in cannabis-based startups and companies who need the funding. Two of the best platforms for cannabis crowdfunding is CannaFundr and Fundanna. These sites allow businesses in the cannabis and hemp industries to start a campaign and get funding.
How Should You Fund Your Cannabis Business?
Getting cannabis business loans can be tricky, especially for businesses in the United States.
Despite marijuana being legal in many states, cannabis is still illegal on a federal level which means that many lenders avoid giving loans to cannabis businesses. Businesses in Canada or hemp businesses may have an easier time getting loans, but in most cases, it’s best to turn to alternative methods of funding.
Fortunately, there are now tons of investors interested in the cannabis industry. Reaching out to these through networking events, social networks or even directly can help you get funding for your cannabis startup. You may also want to consider crowdfunding, especially as there are now crowdfunding sites for cannabis businesses.
You may even want to start a business with your own savings. Many cannabis and CBD businesses don’t require a lot of expenditure, especially when you consider the demand for ancillary services in the cannabis industry. You can even ask your family and friends for small loans.
Conclusion
While entrepreneurs might struggle to get a cannabis business loan, many alternative options are now available. You can consider investors, venture capital firms, crowdfunding platforms or even your personal savings. Make sure to build a solid cannabis business plan and figure out just how much funding you need to start and grow your cannabusiness.
