Want to start your own marijuana business? Find out your multiple funding options.
Due to nature of a cannabis-based business, it can be impossible to get a business loan from a traditional bank to help start or grow your company. As laws regarding the use and cultivation of marijuana continue to pass across states, lawmakers continue to work on regulations on a federal level.
However, you could still be able to secure cannabis business funding in this growing industry.
National Business Capital Business Loans
National Business Capital provides small business owners with a range of financing options. You could get up to $225,000 to grow your cannabis business.
- Minimum Funding Amount: $10,000
- No industry restrictions
- Simple and fast online application process
- Must have been in business for at least 3 months
- Must have monthly revenue of $10,000 or more
Why can’t I get business financing from my local bank?
Although marijuana and cannabis products are legal in many states, it’s still prohibited to buy, sell or use them according on a federal level. The FDIC considers any bank willing to work with a cannabis-based business as taking on an existential risk with potentially negative consequences to the public and in violation of federal law.
Because marijuana is considered a Schedule I drug by the US Drug Enforcement Agency (DEA), banks choosing to provide loans to businesses associated with the drug could be subject to prosecution.
These risks make it all but impossible for you to get a business loan from an FDIC-insured bank and puts your business at risk of federal government shutdown.
What is a Schedule I drug?
The DEA classifies drugs, substances and chemicals into one of five distinct categories — or “schedules” — according to a drug’s accepted medical use and potential for abuse or dependency.
A Schedule I drug is considered to have no accepted medical use and a high potential for abuse. Examples of Schedule I drugs include heroin, ecstasy and marijuana. A 2017 bipartisan bill intends to demote marijuana from Schedule I to Schedule III; however, the bill has yet to be up for vote.
What types of financing are available for cannabis businesses?
You can’t get financing for your cannabis business from a bank. But with this industry growing, you have many other options to choose from:
- Crowdfunding. The US Securities and Exchange Commission (SEC) allows anyone to invest $2,000 in small companies in exchange for a stake in the business. Companies can raise up to $1 million this way. Fundanna is an equity crowdfunding platform that specializes in cannabis businesses.
- Private equity firms. Financial firms may be willing to offer short-term high-interest loans or funding for a large stake in your company.
- 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.
- Alternative financing companies. You’ll find businesses that specialize in cannabis businesses and offer specific financing options to secure:
- Real estate mortgages to purchase or refinance property required to run your business.
- Working capital or money needed to maintain or grow your business.
- Equipment leases to fund hardware, software, vehicles and more.
- Bridge loans that provide short-term funding for up to give years to expand your services
Crowdfunding for cannabis businesses
Fundanna Cannabis Business Equity Crowdfunding
Offers people with marijuana startups a platform to raise up to $1,070,000 each year.
- Maximum Annual Funding Amount: $1,070,000
- Minimum Annual Funding Amount: $10,000
- Secure website for safe bank deposits and withdrawals
- Integrated with social media for easy sharing
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.
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.
So, 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.
How safe are loans for cannabis businesses?
Safety can vary by the type of funding you pursue. Because you’re typically accepting funding from nontraditional sources for a business that could potentially be shut down by the federal government, you’ll want to be careful about how you proceed.
Keep in mind that venture capitalists, private equity firms and even individual sources are taking a financial and personal risk by providing funding to cannabis-based businesses. These funders may be experienced in dealing with business owners who got their start working in a highly regulated industry and as a result could have their own way of doing business to safeguard their interests.
To protect your business, you may want to draw up a contract that is strict in its interpretation and specifically worded to avoid any misunderstandings that be used against you in court. If you are not skilled or experienced in contract negotiations, you could consider hiring an attorney to carefully look over your loan contract before you and all involved parties sign it.
The federal government tolerates marijuana businesses in states where it’s legal but could potentially shut down shops and any other businesses at any time until marijuana is no longer classified as a federal Schedule I drug.
If you’re giving up equity, a good attorney can help you write a solid contract that is mutually beneficial for your business and your investors. This could protect your total personal investments if your business experiences hardships.
Is my cannabis-based business eligible for a loan?
Potential loans for your cannabis-based businesses typically won’t involve a bank, but your company is still required to fit specific criteria that will vary by lender.
Private equity firms, venture capitalists and other investors will likely need to be sure they have a good chance of getting a return on their money. For these investors you must generally:
- Be a business in operation for at least six months.
- Be incorporated as an LLC, limited company or S corporation.
- Have a personal credit score of at least 500.
- Have no criminal record and able to pass a background check.
- Have gross monthly sales of at least $10,000. If you’re a startup, have a solid business plan.
- Have a business bank account.
Depending on the source or platform you’re using, crowdfunding will require generating enough interest and providing incentives for people to fund your business over others competing for funding.
Is marijuana legal in my state?
Marijuana regulations by state
Many states have legalized marijuana in some form for medicinal purposes, recreational purposes and cultivation. However, federal law still classifies marijuana as a Schedule I drug, which complicates the ability for you to get a business loan for a cannabis-based business.
As of June 2017, marijuana is legal in some form in 28 states and the District of Columbia.
|State||Possession limit||Plant limit||Recreational|
|Alaska||1 oz||3 mature, 3 immature||Yes|
|Arizona||2.5 oz||12 plants||No|
|Arkansas||3 oz per 14 days||N/A||No|
|California||8 oz||6 mature, 12 immature||Yes|
|Colorado||2 oz||3 mature, 3 immature||Yes|
|Hawaii||4 oz||7 plants||No|
|Illinois||2.5 oz per 14 days||N/A||No|
|Maine||2.5 oz||6 plants||Yes|
|Maryland||30-day supply, TBD||N/A||No|
|Massachusetts||60-day supply, 10 oz||N/A||Yes|
|Michigan||30-day supply, 10 oz||N/A||Yes|
|Montana||1 oz||4 plants, 12 seedlings||No|
|Nevada||2.5 oz||12 plants||Yes|
|New Hampshire||2 oz per 10 days||N/A||No|
|New Jersey||2 oz||N/A||No|
|New York||30-day, nonsmokable||N/A||No|
|New Mexico||6 oz||N/A||No|
|North Dakota||3 oz per 14 days||N/A||No|
|Ohio||90-day supply TBD||N/A||No|
|Oregon||24 oz||6 mature, 18 immature||Yes|
|Rhode Island||2.5 oz||12 plants||No|
|Vermont||2 oz||2 mature, 7 immature||No|
|Washington||8 oz||6 plants||Yes|
|Washington, DC||2 oz dried||N/A||Yes|
|West Virginia||30-day supply TBD||N/A||Yes|
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 some red tape, there is money to be made.
- Understand your state’s laws. Research whether your state allows recreational use, how much marijuana it allows a person to have, how many plants you’re allowed to grow and any other parameters it requires state residents to follow. Look into laws expected to be enacted in the future.
- Make sure you’re eligible. In addition to your lender’s eligibility criteria, you and your investors may need to pass a background check before proceeding with funding.
- Research any tax laws. Even though marijuana isn’t legal according to federal law, you are still required to pay taxes on money earned. This could require accepting and making payments in cash only to steer clear of possible federal money laundering charges.
- 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, park or church.
- Create a business plan. A good business plan sets you apart from all other businesses seeking similar funding and determines your budget and future pricing.
- Get a license. Licensing for your cannabis-based businesses will vary depending on your state’s laws and can be expensive to pursue.
- Get good product. Before cultivating your own product, you may need to buy from other growers. Carefully review how to stay 100% compliant with your state’s laws when purchasing supplies.
- Market your business. As a startup business, consider offering deals for first-time customers, buying advertising in industry publications and on relevant sites and seek publicity in periodicals and blogs.
While you may likely find it difficult to secure funding for your marijuana business, you have several alternatives to bank loans that could help you start up or expand your services. Some options offer term loans with fixed interest while others could be looking to own equity in your company.
Be sure to compare the funding options available to find one that’s most beneficial for you and complies with all applicable laws.