Cannabis is one of the world’s most prominent and most frequently consumed drugs. To be more precise, it is the leaf of the Cannabis plant known as marijuana or, more popularly, as a weed. This wonder plant is entirely shrouded in controversy for the past few centuries and to this day.
It has inspired many movements and has resulted in protests to legalize this drug all over the world. Marijuana has been deeply rooted in many cultures, some as a mystical point of interest, some with more positive lights, and others in negativity. Either way, this drug has failed to do nothing but turn the world topsy turvy with its effects.
On the one hand, a particular set of people want it banned indefinitely, and the ones that speak from the drug’s experience have a lot to say about it in a positive connotation. Starting a Cannabis business can be highly risky as you don’t know how perceptions and opinions of the public might affect your organization.
This is miainly because you are trying to run a company that is mired in controversy. Visit HEF Finance to get a glimpse of how cannabis companies finance themselves. Wanting to start a Cannabis company isn’t wrong, but it is raising finance for it. Banks play on the safer side as always and so won’t trust you and finance an organization that can get shut down at any point due to laws.
So who do you go to get your finance? We’ll be answering that in this article, and therefore, without any further ado, let’s get in!
The Growth Of Marijuana
Marijuana has come a long way in the United States. Today, 38 states have enacted legislation that either legalizes marijuana recreationally or medicinally.
The marijuana and cannabis industry is currently booming and it’s expected to grow by 18 percent over the next seven years, reaching over 73 billion by 2027. However, marijuana is also a very new industry meaning – there’s no tried-and-true approach to entering the market.
Legal Restrictions Of Marijuana
Understanding legal restrictions are significant while comprehending why banks do not outright finance cannabis companies. While 38 states have legalized marijuana in some form, not all of them allow you to operate a marijuana business in their state.
Depending on which states have laws allowing for the formation of a marijuana business, we recommend checking the Marijuana Policy projects website. This is a marijuana lobbying organization that fights for pro-marijuana legislation.
They keep an updated list of state laws regarding marijuana, including states where marijuana is only decriminalized and states where marijuana is legally taxed and regulated.
Financing Cannabis Companies
1. Approaching Creative Financers
Now in the cannabis industry, it could seem like a feast or famine, and it can flip flop every day. And this can happen with cash and supply for things like flour and oil, things like that. This pushes cannabis business operators to look to traditional financial markets, such as venture capitalists or angel investors, to help build up that war chest.
First, let’s discuss why creative financing can be helpful in the cannabis industry. So when you look around the entire cannabis industry, it’s pronounced that cash is King, the bigger your war chest, the better your chances are of coming out on the other side with some profit at the end.
Now with high upfront capital investments that will hopefully pay off later, cash management and stabilizing. Your cash flow is a constant balancing act for every cannabis business operator, no matter where you are in the supply chain and further being a natural product in a crop that can grow indoors as well as outdoors.
It can sometimes seem like a feast or famine or drought or a surplus of development and that cash that comes with the product. So ironing out these waves of cash and supply are very, very important.
2. Raising Additional Capital
Now, some operators may raise more capital to increase their confidence in their business. Some might use their current cash flow to grow and be a little more risk-averse. Still, others also find creative ways to develop win-win partnerships with businesses upstream and downstream in their cannabis supply chain to help rapidly grow their business and create a stable footing for business.
One example of this may be seeing a cannabis cultivation business taking a loan from their distributors when they already work, and they take that loan in cash and repay it in flower. Now, there are many details to this.
We’ll unpack those later throughout the video. Still, with the cannabis industry incredibly fractured, a few solid joint venture deals or creative financing deals, Just like this one, can go a long way with helping you protect your market share.
3. Joint Ventures
When you make a joint venture deal, you can share access and leverage specific financial, technological, and human resources to achieve your ultimate goals of success as one business unit instead of separate business units.
This also allows you to turbo-boost your business productivity and get to market faster and stay consistently at the front of your call. The second benefit is that you get to share risks and rewards. The cannabis industry is inherently risky for many reasons, but it also has tremendous upside potential if executed correctly and within a compliant manner.
So having an ally in the industry can also help spread out that risk and share multiple businesses’ rewards. So by entering into a JV deal, you can align your incentives with another organization. So you have two organizations working together and bringing focus to achieve one sizable overarching goal. So finding partners that have the same outlook as you is critical; hopefully, you guys want to accomplish the same thing, and then do this deal helps you share in the risks of achieving that significant goal and enjoy the rewards.