With the legalization of cannabis across Canada in October 2018, more cannabis related businesses are popping up across the nation. If you’ve decided to jump into this budding industry, it can be difficult to find the right type of financing since not all lenders will provide financing to cannabis companies. Many of the big banks are currently hesitant to support lending to cannabis businesses – although some may be warming to the idea. But fear not, there are alternative lenders that offer cannabis business loans.
The legalization of cannabis across Canada hasn’t made the big banks eager to provide funding to cannabis business owners. BMO is an exception to that norm, however, 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.
While you might not have luck with most of the “big five” banks, smaller banks such as Alterna Bank and local credit unions could provide the much needed financing your cannabis business needs. In the future, the remaining big banks could be jumping at the opportunity to finance cannabis related businesses – but only time will tell. There are a myriad of reasons why they may not be comfortable with extending funding to cannabis businesses currently, which is why many people looking for a cannabis business loan, turns to other loan providers.
What types of financing are available for cannabis businesses?
Traditional financial institutions. While BMO is currently one of the only big banks onboard with providing funding to cannabis businesses, you may be able to find some smaller banks and local credit unions that will approve you for a loan.
Business loans from alternative financing companies. Some online lenders will happily work with cannabis businesses. You can get a standard term loan from an alternative lender to pay for large, one-time expenses.
Business lines of credit. Alternative financing companies also offer lines of credit to help cannabis businesses cover ongoing expenses. You can access up to your credit limit continuously, which can help you over the course of many years.
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.
Crowdfunding. You may be able to turn to crowdfunding websites like Kickstarter and GoFundMe to raise capital for your business. Some websites also allow you to offer investors equity or shares in your business.
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.
Venture capitalists. In nearly all industries, you’ll find wealthy investors interested in helping small businesses grow, often in exchange for equity.
Angel investors. Similar to venture capitalists, angel investors help businesses get started and typically deal with smaller amounts of money.
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.
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.
Compare loans for your cannabis business
Although cannabis is now legal across Canada, many of the big banks are not yet comfortable with providing funding to cannabis business owners – although BMO is said to be the exception, offering loans and lines of credit to cannabis businesses. Online lenders, some credit unions and smaller banks, such as Alterna Bank, could provide the much needed financing your cannabis business needs. Some online lenders will approve loans to cannabis businesses on a case-by-case basis, but you’ll typically need to have been in business for a few months at least.
Is my cannabis-based business eligible for a loan?
In order to apply for a cannabis business loan, 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 any credit score requirements.
Meeting any minimum age and residency requirements.
Having no criminal record and being able to pass a background check.
Having a business bank account.
Showing a solid business plan.
If your business is already operating, you may need to meet a minimum gross monthly income.
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. For example, some lenders 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 onboard, so there’s no need to lie since you’ve got viable options for financing.
What can I use a cannabis business loan for?
Cannabis business loans 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.
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.
Equity crowdfunding vs. regular crowdfunding
You might associate a website like Kickstarter with crowdfunding, but this model isn’t quite the same as equity crowdfunding.
Regularcrowdfunding 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. Learn more about crowdfunding your cannabis business here.
Cannabis business funding from an investor
Crowdfunding might be a good option for getting seed money for a new cannabis business, but once your business matures, you might want to look into other investment opportunities. Cannabis-focused hedge funds pool money from interested investors to fund your business. Other investment sources include angel investors and venture firms.
Typically, you’ll need to provide lots of documentation, which may be hard since the time is takes to get your funds can be unpredictable. Be prepared to submit a business plan, pitch deck, financial projections and more. It also helps if you can present your pitch in a video or other form of media that’s easy for investors to quickly review.
Friend and family loans
Don’t want to sell equity? Your friends and family can also invest in your business by personally lending you the funds and collecting on interest. You can work out a contract on your own or use an online resource like Loanable, which helps you draw up a legally binding contract for loans from your social circle.
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 January 2020, 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.
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.
Frequently asked questions
Just like any other business, there’s no guarantee on revenue. It can be a tricky business to be in given the varying regulations. It’s important to carefully review your province or territory’s laws and eligibility before pursuing a cannabis-based business.
What you need to start a farm varies depending on where you live and what type of farm you want to start. You’ll need to buy real estate for your grow space and put together a business plan before applying for permits required by your province or territory.
Then, you’ll need to get together the funds to buy equipment needed to grow cannabis in your space, which widely varies depending on how you grow it. This can include pots, seeds, lighting, watering systems and more. You’ll also need employees and security. Once you’re all set up, you can start growing your plants.
How much you’ll need to invest when starting a dispensary will depend on the province or territory, city and municipality it’s located in. You’ll also need to consider how much product you expect to sell, whether you’ll have an online presence, how you will advertise, how many employees you’ll have and more.
By taking the time to create a solid business plan, you can answer many of these questions and anticipate how much you’re looking at to start a dispensary.
Generally, yes. Licensed distributors can usually ship pot via Canada Post to customers. That said, Canada Post requires proof of age when delivering the product and won’t leave the package unless someone of the legal age is there to receive it. You can learn more about shipping marijuana as a business here.
Emma Balmforth is a producer at Finder. She is passionate about helping people make financial decisions that will benefit them now and in the future. She has written for a variety of publications including World Nomads, Trek Effect and Uncharted. Emma has a degree in Business and Psychology from the University of Waterloo. She enjoys backpacking, reading and taking long hikes and road trips with her adventurous dog.
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