Compare three top cannabis crowdfunding sites

Cannabis businesses are in a tough spot. They’re part of a fast-growing industry with a lot of demand. But because of federal laws that prohibit funding these businesses, getting a standard business loan isn’t an option — at least not for now.

But business loans aren’t the only way to finance your new edibles shop. We take a look at one of the few ways you can legally fund your a cannabis business: crowdfunding.

Why should I consider crowdfunding for my cannabis business?

Crowdfunding is a way for businesses to raise funds from a large group of people, usually in exchange for rewards or a share of business ownership. It’s also one of the few options that cannabis businesses have to fund their ventures.

Why’s that? The US federal government still considers marijuana a Schedule I drug, meaning that any bank that works with cannabis-related businesses are at risk for prosecution.

It is legal, however, to invest up to $2,000 in small cannabis businesses in exchange for a portion of ownership. Cannabis companies can raise up to $1 million in this way. Crowdfunding essentially facilitates the process — though it’s not without its challenges.

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. Kickstarter is a platform where backers get some form of reward, like a free product or early access to a service, for their contributions.

On the other hand, equity crowdfunding gives backers a piece of the company. In this way, backers become investors. Both regular and equity crowdfunding are legal. The latter is highly regulated by the SEC, and the former requires some careful planning when it comes to rewards to abide state laws.

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. You should also consider that regular crowdfunding requires reward tiers while equity relies on giving up a portion of your business.

Three cannabis crowdfunding platforms to consider

Interested in crowdfunding? Take a look at these three platforms that can help you raise funds for your pot-related shop.

Fundanna

This equity platform specializes in connecting startup cannabis businesses with investors around the world. It’s relatively free of risk and easy to use for businesses that deal with recreational and medical marijuana.

However, it only came to the market in 2017, so it doesn’t yet have a proven track record. And it isn’t free to use.

CannaFundr

Launched in 2014, CannaFundr is practically a grandfather in this young industry. Like Fundanna, it’s an equity crowdfunding platform, connecting any cannabis-related business with anonymous investors.

You won’t pay a fee to use the site, but it’s difficult to navigate. And getting approved can take a while. Its security features also make it impossible to get feedback from investors or even browse other projects.

420fundme

The crowdfunding platform 420fundme is rewards-based, meaning you give donors gifts rather than ownership of your business. But while the site is easy to navigate for both investors and companies, it’s already run into some roadblocks during its recent launch.

It’s also connected to the peer-to-peer investor platform Cannavstr and 420shindig, which helps businesses throw cannabis fundraising parties.

Top three challenges you could face when crowdfunding

The legal gray area in which the cannabis industry works means that things are never simple. Here are some of the most common problems cannabis businesses run into with crowdfunding:

• You might need a bank account. It seems simple enough, but banks don’t like to work with cannabis businesses. This means that accessing funds is a lot more difficult that some lenders make it out to be.
• It’s hard for ordinary people to invest. Many cannabis crowdfunding sites aren’t open to the public — you have to sign up as an investor. This provides businesses with some legal cover, but it also means that ordinary people could have trouble contributing to — or even hearing about — your business.
• Platforms can have bank problems too. Crowdfunding platform 420fundme was shut down for 30 days after its bank decided not to work with them — even after it was preapproved for business. While you don’t necessarily stand to lose any money, it can make working with these platforms frustrating.

Five tips for a successful cannabis crowdfunding campaign

1. Pay attention to your business plan. A business plan is the backbone of any crowdfunding campaign. Make sure it’s easy to understand, persuasive and — most important — sounds exciting.
2. Invest in marketing. Investors might not be able to (or want to) get in touch with you, so your profile is all you have to work with. Many businesses hire marketing consultants to help with their cannabis crowdfunding campaigns.
3. Read your crowdfunding site’s rules. Make sure you understand what you’re getting into — you don’t want to fail to raise the funds you need due to a technicality.
4. Stay on top of regulations. Especially Securities and Exchange Commission rulings. The last thing you want is to be shut down for raising too much money. Consider hiring an SEC lawyer if keeping up is too much for you.
5. Prepare for some slip-ups. Cannabis is a new industry, and its murky legality means that roadblocks are likely. Be prepared by exercising all of your financing options.

SEC regulations

In mid-May of 2016, the Securities Exchange Commission (SEC) passed regulations on how cannabis crowdfunding functions. Before, you had to be a rather wealthy individual to invest in cannabis.

Under the new regulations, you can invest $2,000 per year as long as you receive stock in the company. A wealthy individual gets that limit raised to $100,000. It should be noted that this limit is on an accumulative basis and not per company invested in.

The other part of the regulation allows small cannabis business to receive up to $1,000,000 in crowdfunding each year through the method. It can require extensive filing with the SEC depending on how much you raise, and a bank account specifically for the funds received.

Explore more financing options for cannabis businesses

Want a loan instead? Compare lenders that can serve cannabis businesses

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Name	Product	Filter Values	Loan amount	APR	Requirements
Lendio business loan marketplace			$500 – $5,000,000	Starting at 6%	Operate business in US or Canada, have a business bank account, 560+ personal credit score	Submit one simple application to potentially get offers from a network of over 75 legit business lenders.	Check eligibility More Info		loading Fetching your data...
Seek Business Capital			$5,000 – $500,000	Varies by lender	Personal credit of 680+, no bankruptcies in the last 4 years.	Startups and newer businesses could qualify for loans and credit cards with a custom financing package.	Check eligibility More Info		loading Fetching your data...
National Funding Small Business Loans			$5,000 – $500,000	4% to 8%	Be in business at least one year and make at least $100,000 in annual sales. Other loan types have additional requirements.	Working capital loans and equipment financing, some high-risk industries may be eligible.	Check eligibility More Info		loading Fetching your data...
Diamond Business Loans			$25,000 – $150,000	5.9%-19.99%	680+ personal credit score, no late payments or bankruptcies	Grow your startup or cannabis business with a line of credit or fixed-term business loan.	More Info		loading Fetching your data...
Green Leaf Money			$5,000 – $100,000	6% to 23%	Documented income and records of your business spending and accounts.	Connects cannabis businesses with lenders willing to work with them across the country.	More Info		loading Fetching your data...
Fundanna Cannabis Business Equity Crowdfunding			$10,000 – $1,070,000		Must own a startup in the cannabis space. You're not eligible if your company is outside of the US or already reports to the SEC.	Raise funds for your cannabis business while using a streamlined platform to communicate with investors and develop a loyal brand following.	More Info		loading Fetching your data...

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Bottom line

Working in the cannabis industry is risky: You’re working in a legal gray area where nothing’s guaranteed. While crowdfunding can be difficult for cannabis businesses, it’s still one of the easiest over-the-table ways to get funding.

Frequently asked questions

• Can I use crowdfunding for funds to start a new cannabis business?

  The crowdfunding platforms compared on this page allow startups to run campaigns. But you’ll want to make sure you plan to follow all state regulations with your new cannabis business.

  How to legally start a cannabis business in 2020

• Can someone living in a state where marijuana is illegal invest in a cannabis crowdfunding campaign?

  Not always. Different states enforce different cannabis crowdfunding laws, though you’re generally safe getting money from investors based in states where marijuana is legal. If you’re using a crowdfunding site that doesn’t come with a rigorous registration process for investors, consider putting up a warning asking potential donors to check their state’s laws. And note that laws can frequently change.

• Can I use crowdfunding to finance my grow house or dispensary?

  You can, but you might have a hard time getting investors to bite. Businesses that deal directly with the cultivation and sale of marijuana are usually considered a risk. You might find more luck the traditional way of raising money for cannabis businesses — networking at conferences.

• I miss the community of mainstream crowdfunding websites. Can I find that anywhere?

  Yes, try using social media sites for people interest in marijuana as a way to find and share ideas with other cannabis business owners.

• Should I set up a crowdfunding campaign or get a business loan?

  It depends on how fast you need funds and what your business financials are. Crowdfunding typically takes longer to get funds since you’re raising money for individuals. But business loans are harder to qualify for.

  Compare business loans vs. crowdfunding