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How to get cannabis business funding
There are multiple ways you can get cannabis business loans in Canada.
Guides
Industries
Finding a cannabis business loan in Canada can be a challenge since not all lenders are open to funding the cannabis industry. Many of the big banks are currently hesitant – although some may be warming up to the idea. But even if you don’t qualify for a bank loan, there are other legitimate lenders that can offer cannabis financing.
What's in this guide?
Where can I get cannabis funding in Canada?
Here’s a look at your prime options if you’re looking for cannabis business loans:
Online lenders
Some online lenders will happily work with cannabis businesses. For example, you can get a standard term loan to pay for large, one-time expenses. Online lenders will approve loans to cannabis businesses on a case-by-case basis. You’ll typically need to have been in business for several months at least and meet their minimum revenue requirement.
Pros:
- Convenient application process. Across the board, borrowing online is significantly easier than borrowing from a bank. There’s less paperwork and a shorter application process, even if you’re a small business.
- Easier to qualify for compared to bank loans. Online lenders also have high approval rates, which work in your favour. They also put less emphasis on credit scores.
Cons:
- Watch out for higher interest rates, fees or charges. Business loans from online lenders may come with higher interest rates compared to banks. The loan may also come with extra fees like administration fees, so keep an eye out for them.
- Some may not provide business loans for cannabis companies. Double check with the online lender you have in mind before applying, or see the list of lenders below who are open to cannabis funding.
Top pick for cannabis business financing
Key features: OnDeck Canada provides fast and affordable business loans. Borrow anywhere from $5,000 to $300,000 with terms lasting from 6 - 18 months. You’ll have to repay the amount you borrow with fixed daily or weekly amounts, and your interest rates will range from 8.00% – 29.00%. Interest will depend on a number of factors like the state of your credit, how much you borrow and the length of your term.
How to apply: Fill out the online application with your basic business information, plus three months of business bank statements. Then a team member will reach out within one business day to discuss offers. Choose your term, amount and payment schedule.
Eligibility requirements: 6 months in business, minimum $10,000 monthly revenue, approved industry (open to the cannabis industry)
Lenders that offer cannabis business loans
The online lenders below will review and approve cannabis business loans on a case-by-case basis.
Banks
While consumers may turn to banks as the most traditional route to source a loan to buy a home, a car, or to start a business, most of Canada’s major banks are reluctant to dole out funding for the cannabusiness sector. BMO is an exception to that norm and has generally offered substantial loans and lines of credit to cannabis businesses. In late June of 2018, Aurora Cannabis signed a loan deal with the Bank of Montreal for an astounding amount of up to $250 million. However, if your cannabis business isn’t as big as players like Aurora Cannabis, Canopy Growth and the Green Organic Dutchman, it can be more challenging for you to get approved, and the application process alone can cost you thousands of dollars.
Pros:
- Higher loan amounts with lower interest rates. If your cannabis business is eligible for a loan from a bank, you’ll secure higher loan amounts with lower interest rates and longer terms.
- Variety of loan options. Whether you want a secured or unsecured business loan, a business line of credit, a business credit card or a home equity loan, you can turn to a string of loan options to suit your needs.
Cons:
- Major banks won’t fund cannabis business loans. While you might not have luck with the Big Five banks, it’s worth seeking out smaller banks, such as Alterna Bank, to provide the much needed financing for your cannabis business.
- Banks may insist that your business is well-established for several years, with a high annual revenue before sorting out a loan for you. This is a big hindrance for startups. You may also have to secure your business loan with personal assets.
Credit unions
Credit unions have more flexibility to provide loans to the cannabis industry compared to big banks. Because credit unions are controlled by their union members, the acceptance of your application hinges on whether they’re conservative or have any hesitation to fund a cannabis business.
Pros:
- Loans with low interest and flexible financing. Credit union membership often comes with a slate of benefits including low interest rates and adjustable financing conditions.
Cons:
- You must be a member to qualify. You need to be signed up to the credit union you want to borrow from first and you may need to have an established relationship with them to qualify. Credit union business loans are often capped at $50,000.
Crowdfunding
Crowdfunding is a way for businesses to raise funds from a large group of people who are interested in your mission or supporting your startup idea. You may be able to turn to crowdfunding websites like Kickstarter and GoFundMe to raise capital for your cannabusiness. Some websites also allow you to offer investors equity or shares in your business. Read more about cannabis crowdfunding sites.
Pros:
- Innovative funding option. While traditional routes like banks and credit unions have their hurdles, crowdfunding bypasses a lot of the red tape and has been a viable way for cannabis businesses to seek funding even before marijuana was legalized in Canada. Just make sure your business stands out from the rest and that you have a strong marketing plan to get attention.
- Help with your campaign. Crowdfunding platforms offer expert guidance to help you shape your campaign.
Cons:
- Small backing community. While everyday Canadians may want to support your cannabis business, they may not have the funds to spare to invest in it.
- Potentially high fees. Compare various crowdfunding platforms to see which you like most, and factor in the fees for using the platform. Most charge a percentage of your goal as a service fee.
Regular crowdfunding vs equity crowdfunding
- Regular crowdfunding requires the business to provide backers with some form of reward, like a free product or early access to a service, for their contributions. Platforms like Kickstarter usually offer reward tiers, which means you can offer backers different reward levels depending on how much money they contribute.
- Equity crowdfunding gives backers a piece of your company. In this way, backers become investors. This essentially means you’re giving up a portion of your business.
Which should you use? It depends on your business plan and what you’re willing to give. When it comes to donation-based backing, you’re building a potential customer base instead of gaining investors.
Private equity firms
Financial firms may be willing to offer short-term high-interest loans or funding for a large stake in your company. If you’re not willing to give up some of your ownership, look elsewhere for funding.
Pros:
- Great opportunity to source funding. When you’re opening up your business to private equity firms, you have the potential to raise significant amounts of capital, removing the need for a bank loan or other loan options.
- You have a say in who invests in your business. Ideally, your potential investors share the same values and objectives for your business.
- Active involvement. With a stake in your business, investors want you to succeed and may share their expertise to help your venture thrive.
Cons:
- You’re diluting the company. When you introduce investors, you lose some control over the decision-making and direction of the business, as you’re accountable to your financers.
- Usually limited to major investments. Private equity firms tend to scope out large-scale business opportunities, which means startups and small businesses may not be on their radar.
Venture capitalists
In nearly all industries, you’ll find venture capitalists, who are wealthy investors interested in helping startups and small businesses grow, often in exchange for equity. If you manage to score a pitch meeting with venture capitalists, make sure you have a solid business plan to win their investment.
Pros:
- No interest charges like a loan. Venture capitalists are gambling on the success of your business and trade in their investment for equity. That means you get to avoid worrying about repaying loans and interest charges cropping up.
- Support and networking opportunities. Just like private equity firms, venture capitalists have a vested interest in your success, so they’ll provide mentoring, advice, training and the right networking to help your business grow. Typically, venture capitalists do business in the industries they’re most connected to.
Cons:
- Some loss of control of the company. When you add investors into the mix, you provide them with a say in the direction your company takes.
- You need to pitch your business case. Along with private equity firms and angel investors, you’ll need to create a business plan with a solid pitch to convince venture capitalists to buy into your company. They may even pepper you with questions to make sure you have a solid business worth investing in.
Angel investors
Similar to venture capitalists, angel investors help businesses get started and typically deal with smaller amounts of money. While you won’t see them loan out large sums like venture capitalists or private equity firms, their involvement may be the financial boost you need to get your company off the ground.
Pros:
- No repayment or interest required. Just like other investors listed above, you don’t have to worry about accumulating interest on a loan with angel investors. If your company goes bust, you don’t have to pay back a cent to investors that took a chance with your business.
- Expert advice. Angel investors are typically successful entrepreneurs themselves, making their insight an invaluable asset for your fledgling business. Because they’re putting their money on the line for your business, they’ll do their best to help you succeed.
Cons:
- Future profit is limited. Because you’re trading away equity in your company, you’re also handing off a portion of your future earnings.
- Loss of control over your business. You’re also trading away your sole ownership of the company, so your angel investor has a say in major decisions your business makes.
- It takes time to find the right angel investor. Be patient with finding the right match before handing over equity in your company. Do your research about the angel investor and ask them about their objectives in this partnership before proceeding. You’ll have a good idea of whether they’re motivated solely by the bottom line or if they have a genuine interest and want to get involved in your cannabis business too.
Cannabis-focused hedge funds
In a nutshell, hedge funds are pooled investments raised from a fund manager who takes the pot of money and invests it according to the strategy they promised to use. In this case, they’d pour the funding into worthy cannabis businesses, potentially yours.
Pros:
- Special interest in the cannabis business industry. It’s “high net-worth” investors that are buying into hedge funds. They will likely have a curiosity, or even a passion, about the cannabis industry if they’re willing to pour their earnings into this niche fund.
Cons:
- They’re not common. While the cannabis business industry is gaining in popularity, you won’t find many cannabis-focused hedge funds available to you.
Grants
Startup grants are hard to win and many require you to use the funds for a specific purpose – but some are available to all business startups who meet the criteria for the grant in question. With so many grants out there provided by the government, businesses, and community organizations, it may be possible to find your cannabis business the free money it needs to be successful.
Pros:
- Free money, no strings attached. Essentially, grants are free money gifted to your business to help it grow. Better yet, you’re not handing over any company equity and have full autonomy over your business’s overall direction.
- Prestige and promotion. If you’re the winner of a coveted grant, you’ll receive some great PR to boost your company’s profile. It’s a big win for your company’s reputation too.
Cons:
- They’re hard to get. With so many promising startups and businesses applying for limited grants, these programs are highly competitive.
- Check the fine print. Before you apply to and commit to a loan, consider the conditions that follow. If it’s a grant to boost employment in a targeted area, you may be promising to hire staff or buy office space regardless of whether that’s a good decision for your business.
Friends and family
Your family and friends can also invest in your business by personally lending you the funds and collecting on interest.
Pros:
- Smooth application process. You don’t have to jump through the same financial hoops to get a loan from a relative as you would from a traditional lender. While banks may be caught up in red tape in regards to cannabis loans, your family and friends may be more willing to support you on your business endeavours.
- Better loan terms. From lower interest rates to adjustable repayment terms, you can work with your loved one to iron out the details of your loan to suit both of your needs.
Cons:
- Mixing business with family. Any time finances seep into the family, there is a risk of miscommunication. You and your relative need a concrete plan so both parties understand if your family member is receiving equity in your business, how you will repay your loan and under what terms, and what happens if your business flops.
- Pressure to recoup their costs. When you’re relying on your loved one’s funding, there is added pressure to succeed because their livelihoods are on the line too. Be careful not to borrow from loved ones who don’t have financial security and could lose out if your business doesn’t take off.
What types of loans are available to finance my cannabis business?
If you’re looking for cannabis business loans in Canada, you have several options:
- Business loans. Business loans provide your company with funding for any business-related expenses, like growth, filling in cash flow gaps and covering other expenses. You repay the funds, plus interest and fees, in monthly installments, over terms of up to 20 years. Alternative lenders are your best bet for help with funding your cannabis business.
- Merchant cash advance. A merchant cash advance lets you borrow money in exchange for a percentage of your daily credit card and debit sales. Lenders determine the amount you can borrow by looking at your historical sales data. The amount you’ll pay back month to month will vary based on your sales. It’s usually a percentage of your sales, including a “cost of doing business” fee.
- Business lines of credit. A business line of credit allows you to borrow funds up to a predefined limit, and only pay interest back on the money you borrow. This flexibility means you can access cash up to your credit limit continuously over the course of many years. Alternative financing companies offer lines of credit to help cannabis businesses cover ongoing expenses.
- Mortgages. Aside from term loans, mortgages are the other most sought after financial products for cannabis businesses. These secured loans can be used to buy or refinance the buildings or land you need to run your business.
- Equipment leases and loans. Also available through alternative financing companies, cannabis businesses can use equipment loans to pay for hardware, software, vehicles and more. Your equipment will generally serve as collateral to secure the loan.
- Personal loans. If you’ve got a good credit history, you could apply for a personal loan, which you might be able to use to start or fund your cannabis business – although this will depend on whether the lender allows it or not. Keep in mind you’ll be personally responsible for paying back a personal loan, even if you use it for business purposes. Compares business loans vs personal loans.
- Home equity loans. Homeowners can also borrow against the value of their houses with a home equity loan or a home equity line of credit (HELOC). You can usually borrow up to 80% of the equity you own in your home. Your home will be used as collateral to secure the loan or line of credit – a risky move for any business venture.
Cannabis business loan costs
Like any loan, there are generally two main costs you’ll need to pay attention to when comparing loans.
- Interest. Lenders charge a percentage of the amount you owe each month, which they then add to the amount you repay. For business loans, interest rates typically start as low as 5% and go up to 30% or higher.
- Fees. Business loans may come with fees involved in taking out the loan. The most common fee is an origination fee. Lenders usually charge between 0% to 5% and often deduct it from the amount you borrow.
Lenders often express your loan’s interest and fees in one percentage called the annual percentage rate (APR). If a loan doesn’t come with any fees, the APR and interest rate are the same. If it does, the APR will be higher to reflect those additional costs.
How to qualify for cannabis business financing
In order to apply for cannabis business funding, you’ll need to provide information regarding your business plan, expenses, revenue and more. While it will vary between providers, documents and requirements may include:
- Meeting minimum monthly revenue requirements
- Meeting minimum time in business requirements
- Meeting any credit score requirements
- Meeting any minimum age and residency requirements
- Having a business bank account
- Showing a solid business plan
- Having no criminal record and being able to pass a background check
Do I need a business plan to get a loan for my cannabusiness?
Having a clear business plan will help you secure a loan for your cannabis business, whether you’re filling out a quick application for an online lender or you’re making your business case to a room full of potential angel investors. You need to know the ins-and-outs of your business’s short- and long-term goals, why you need financing to get there, and how you’ll either pay your loan back or help your investors make money for their involvement.
If you’re applying for an online loan, a sales representative will likely follow up with you to ask questions about your venture, its legitimacy, and what your sales and resources are for repaying your loan. Private equity firms, angel investors, venture capitalists and hedge fund managers will grill you about your business plan until they’re convinced you’re a promising business worth investing in. If you’re applying for a grant, the same ground rules apply: Organizations want to know what you’ll be doing with your funding to get your business off the ground.
Ultimately, writing a business plan will help you gauge the feasibility of your venture and decide on what the financing will be used for. Its contents might include:
- A company description. Clarify what your business does and who it serves. Consider which competitive advantages your business will have.
- Market analysis. Is there a great market need for your business? Who will be your competitors? Are there trends that your business is looking to capitalize on?
- Organization and management. Choose a legal structure for your business. Create an organizational chart to show who will lead your business.
- Marketing and sales. How will you find customers and what defines a sale – or the point at which you make money – in your business?
- Funding request. Describe how much funding you’ll need, what you need it for and how you’ll deploy the capital.
- Financial projections. What will your revenue and expenses look like? Make financial forecasts for at least the next three years and explain why they make sense.
Can lenders tell if I lie on my application?
It might be tempting to pretend you’re in another, less complicated industry when applying for financing – but lenders have ways of making sure that you’re telling the truth.
Most lenders need to verify the information on your application is correct and that you’re in an eligible industry. They may even require an on-site visit before you can get approved for a business loan.
It’s never wise to lie on an application. Since the countrywide legalization of cannabis, some banks, credit unions, online lenders and investors seem to be jumping on board, so you’re better off applying with a cannabis-friendly lender if you’re trying to get a business loan.
What can I use a cannabis business loan for?
Cannabis business loans in Canada are a lot like other loans – you can use them to cover almost any cost related to your business. Here are some common expenses cannabis businesses can use a business loan to cover:
- Cannabis business licensing fees. Starting a new business? You’ll need to get a business license to register your business.
- Grow house costs. Setting up and maintaining a grow house is expensive — you have to have a strong grip on the indoor climate to get the best product. Costs include land, buildings, electricity, water and much more.
- Dispensary costs. Running a dispensary can come with daily recurring costs that your business might not be able to afford when it’s just starting out — like paying your rent and bills.
- Hiring new staff. Bringing new people on board can increase productivity and future revenue — but you’ll need to be able to pay their salaries first.
- Paying for equipment. Some cannabis business lenders offer options for leasing or buying new equipment that you’ll need to keep things running smoothly.
- Utilities. Business owners with grow houses especially might want to consider taking out a line of credit or business loan to cover those high electricity and water costs.
- Rent, land or real estate costs. You’ll need a place for your business to operate. A commercial mortgage can help you rent or buy your first piece of real estate or expand your current operation.
Representative example: Leslie gets financing for her cannabis business
Leslie wants to start growing cannabis in bulk on her farm to sell to distributors and dispensaries. Besides buying a lot of seeds and growing equipment, she also needs to pay for renovations, lights, a security system worth at least $5,000.00 as per federal standards, licensing fees, staffing, administrative costs, increased electricity and hydro bills, and other expenses incurred during the first year before she starts bringing in revenue.
Leslie used to own a second home, which she sold to make up most of the money needed to cover startup costs, but she is still short about $150,000.00.
Leslie finds an online lender that offers loans for cannabis businesses and submits an application. With a strong credit rating of 820 and a good amount of equity built up in her farm, she is approved for a 4-year loan with a competitive APR. The lender only requires that 13% of the loan plus interest be paid back during the first year while Leslie grows the business, after which she has to pay back 29% of the loan plus interest each year.
| Startup costs + first year operating expenses | $750,000.00 |
| Loan type | Term loan |
| Loan amount | $150,000.00 |
| Interest rate (APR) | 9.90% |
| Loan term | 4 years |
| Additional fees | Origination fee of 3.50% ($5,250.00) |
| Monthly payment (year 1) | $1,713.45 |
| Monthly payment (years 2, 3 & 4) | $4,204.74 |
| Total loan cost | $171,932.04 |
*The information in this example, including rates, fees and terms, is provided as a representative transaction. The actual cost of the product may vary depending on the retailer, the product specs and other factors.
Marijuana regulations by province and territory
Under the Cannabis Act put into effect on 17 October 2018, Cannabis is legal across every province and territory in Canada. However, laws and regulations surrounding the buying, selling and growing of cannabis vary between provinces and territories.
Each province and territory has unique laws that determine:
- How cannabis can be sold.
- Where cannabis stores may be located.
- How stores must be operated.
- What the individual possession limits are for customers.
- The minimum age required to purchase cannabis.
- Where cannabis can be used in public.
- Requirements on personal cultivation.
- Rules surrounding the transportation of cannabis.
As of April 2021, here are the current regulations for age and distribution for the provinces and territories:
| Province | Legal age | Where to buy |
|---|---|---|
| Alberta | 18 | Sold by licensed private or public physical stores, government-run stores or on a government-operated online store. |
| British Columbia | 19 | Sold by licensed private or public physical stores, government-run stores or on a government-operated online store. |
| Manitoba | 19 | Sold by privately licensed physical stores or on privately operated online stores. |
| New Brunswick | 19 | Sold by government-run physical stores or government-operated online stores. |
| Newfoundland and Labrador | 19 | Sold by licensed private or public physical stores, as well as government-operated online stores. |
| Nova Scotia | 19 | Sold by government-run physical stores or government-operated online stores. |
| Ontario | 19 | Sold by licensed private physical stores or on a government-operated online store. |
| PEI | 19 | Sold by government-run physical stores or a government-operated online store. |
| Quebec | 21 | Sold by government-run stores or on government-operated online stores. |
| Saskatchewan | 19 | Sold by licensed private or public physical stores and online stores. |
| Northwest territories | 19 | Sold by licensed public physical stores or on government-operated online stores. |
| Nunavut | 19 | Sold by government-run physical stores or government-operated online stores. |
| Yukon | 19 | Sold by licensed private stores, as well as a government-operated online store. |
How to start a marijuana dispensary
Opening a dispensary is not as easy as growing some plants and setting up shop. However, if you’re willing to put in some work and deal with challenges, there is money to be made. Keep in mind the regulations above, since not all provinces and territories support the purchasing of marijuana from privately owned stores.
- Understand your province or territory’s laws. Research whether you can dispense cannabis to locals from a privately owned store. Not all provinces and territories support both.
- Make sure you’re eligible. Once you find a lender whose willing to provide you with financing, make sure you meet the eligibility requirements in order to receive the funding.
- Research any tax laws. Be in the know when it comes to paying taxes on your business. Contact an accountant to learn about the cannabis taxation laws in place in Canada. It’s likely that these will change in the coming years since cannabis has only recently been legalized and things are still being smoothed out.
- Find a compliant rental space. Look into zoning laws that could affect where you can open a dispensary. You’ll typically find that you cannot open a cannabis-based business near a school or a park.
- Create a business plan. A good business plan sets you apart from other businesses seeking similar financing and can sometimes help determine the amount of money you’re offered and the APR you’ll face.
- Get a license. Licensing for your dispensary will vary depending on your province or territory’s laws and can be an expensive and lengthy process.
- Get good product. Before cultivating your own product, you may need to buy from other growers. Carefully review how to stay 100% compliant with any laws when purchasing supplies.
- Abide by packaging laws. Each province and territory has unique transporting and packaging laws when it comes to cannabis. You’ll need to abide by these laws when moving product.
- Market your business. Consider buying advertising in industry publications and on relevant websites and seek publicity in the media and online world.
How do I get a loan to open a dispensary?
Online lenders are more open to cannabis dispensary funding than financial institutions such as the major banks. Online lenders, however, do not guarantee approval and will only approve cannabis business loans on a case-by-case basis. Online lenders’ criteria will vary, but generally, you will need to have been in business for several months and making revenue (at least $5,000-$10,000 monthly). Each online lender will have other financial requirements that differ from each other. Before opening a dispensary, you will need to do lots of preliminary research. Become familiar with provincial and federal laws, and find out what documents and information you’ll need to get licensed. You will also need a high-quality business plan. If you already meet the requirements, compare online lenders now.
How to start a cannabis business legally
Bottom line
While it can be a challenge navigating the laws and regulations in place surrounding cannabis, it’s likely to become easier in the future once the dust settles and the rules have been smoothed out. Finding financing to get your cannabis business off the ground is definitely possible, with both traditional and non-traditional lenders supporting the industry.
Be sure to compare all available financing options to find one that’s the most beneficial for your business.
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