So you have the perfect idea for a marijuana business. You can see it in your head: it will change the cannabis market and make you tons of money. But, the thought that you need money now to make money in the future quickly brings you back to earth.
Whether you want to start a marijuana dispensary operated by robots, a cannabis extract factory, or even a platform for cannabis growers to seek customers, you need capital. Depending on the business, the amount you will need can vary from a few hundred thousand dollars to millions.
However, before you give up on your business idea, you should know that there are a lot of ways for you to raise capital for your cannabis business. Follow along as we discuss some of the top funding sources you can take advantage of.
Table of Contents
1. Bootstrapping
Many small businesses and startups often have to rely on bootstrapping to raise the funds needed to start making the first sales. It is also a straightforward process that gives you a lot of control over your business.
One way to bootstrap is by doing exactly what the name suggests: pulling yourself up. This means bringing together all your resources to act as capital for the business. Your savings are a good place to start, and any money from a business or investment that you already have. You can also sell some of your assets to raise funds, e.g. electronics, clothes, and even some household items.
Another way to bootstrap is by using your people skills to get your friends and family to invest in your business. It can be quite difficult to get your social circle to put money into a cannabis business due to the stigma marijuana still elicits. However, those in your social circle with an open mind can be good sources of capital. Treat all your appeals for funds seriously, preparing professional presentations to use as visual aids as you pitch to your friends and family. Let them see your vision for the business, but do not be afraid to pull on those heartstrings a little.
Bootstrapping is a very common way of starting a business, so cast away any embarrassment you might harbor about asking people who know you for money. Remember, other funding sources are more likely to invest in your business after you’ve already started selling, so bootstrap until you succeed.
2. Crowdfunding
Another way to generate capital for your cannabis business is by reaching out to thousands of people on the internet and asking them to invest funds in the business. There are two types of crowdfunding: rewards-based and equity-based. In a rewards-based system, investors put in money in exchange for some sort of gift or benefit. The equity-based system lets investors own a small share of your company, which means they’ll earn dividends from your profits.
Crowdfunding is a great method for raising funds for cannabis businesses because you can explain the purpose and vision you have for the business, and the people who invest are those who believe in it. Crowdfunding also lets you set the funding goal and the minimum amount an investor can contribute, which is an option that is not available in other funding sources. Fundanna is a cannabis-specific platform that can help you reach thousands of investors looking for opportunities to support marijuana businesses.
3. Business Loans
Business loans are a good funding option because they allow you to run your business on your own terms. Most times, the lending institution only wants to see that you are making enough sales to pay them back at the agreed interest rate.
Getting loans for a cannabis business can be very challenging. However, before you go to a loan shark, hear what banks in your locale have to say about the matter. Over 700 banks across the country offer financial services to cannabis businesses, so if you live in a state where cannabis use is legal, your local bank should be your first stop. Plan a face-to-face visit with loan agents in several banks so you can find out their stance on cannabis loans. Talk to other cannabis business owners and get their recommendations about banks with favorable loan terms.
In addition to banks, multiple financing companies with a nationwide reach offer cannabis business loans. Such companies include GoKapital, GUD Capital, and Diamond Business Loans. All these companies offer loan amounts ranging from tens of thousands to millions of dollars, so they are worth looking into.
4. Equity Financing
Equity financing differs from loans in that you do not have to pay the money back. However, the firm providing the funding will own a portion of your company equal to the amount of money it provides. This means you won’t get full financing for your business because that will make you an employee, not an owner. It also means that you will have to value your company before seeking equity financing.
There are several ways to find out the value of your business. If you haven’t started the business yet, think of how much it will cost you to start operations. If you’re already running the business, subtract the total of your current debts from all the assets the business owns. A third way is by conducting a valuation of your business’s annual sales. When you approach an equity investor, make sure to ask for an investment that makes up a percent of the total value of your business.
Venture capital firms offer equity financing. The most popular among cannabis businesses is Casa Verde Capital, which invests in businesses intending to provide cannabis-related solutions. Tuatara Capital invests in cannabis growing and distributing businesses, which makes it a great choice if you’re planning to retail cannabis.
In any case, you’ll probably need some kind of pitch to convince them to invest in you. That’s why we have a guide on how to create a killer pitch for your cannabis business.
5. Development Funds
Some states that have legalized and decriminalized cannabis offer entrepreneurs from marginalized communities low-interest loans to grow their marijuana businesses. Illinois was the first state to do this, offering $30 million in funding to small cannabis businesses. Other states are jumping on the bandwagon, making small business owners able to compete with big, well-funded cannabis companies. If you’re in Illinois, then definitely check to see if you qualify for this funding option. Entrepreneurs from other states should keep an eye out so they can be first in line when this option is made available in their locality.
To Sum Up…
Getting capital for your cannabis business might be one of the hardest hurdles you face in your entrepreneurship journey. However, with legalization and thousands of people looking to invest, this is the best time to fulfill your dream of starting a marijuana business. So get your presentations ready and go out there and raise funds for your cannabis business.
Even if you’ve already secured funding, you’re not out of the woods yet. Another extremely important thing for the success of your cannabis business is marketing. And to have top-notch marketing, you should check this list of the best cannabis marketing agencies. These are market leaders who will make sure your business is visible.