How to get funding for your cannabis business

There are multiple ways you can finance your cannabis-based business.

Our top pick: Lendio

• Min. Loan Amount: $500
• Max. Loan Amount: $5,000,000
• Requirements: Operate a business in the US or Canada, have a business bank account and have a personal credit score of 675+.

• Quick turnaround
• Secure online application

Our top pick: Lendio

Submit one simple application to potentially get offers from a network of over 75 legit business lenders.

• Min. Loan Amount: $500
• Max. Loan Amount: $5,000,000
• Requirements: Operate a business in the US or Canada, have a business bank account and have a personal credit score of 675+.

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Name	Product	Filter Values	Min. Amount	Max. Amount	Requirements
Lendio			$500	$5,000,000	Operate a business in the US or Canada, have a business bank account and have a personal credit score of 675+.	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...
Diamond Business Loans			$25,000	$150,000	Personal credit score of 680, no late payments or bankruptcies.	Grow your startup or cannabis business with a line of credit or fixed-term business loan.	Check eligibility More Info		loading Fetching your data...
Green Leaf Money			$25,000	$10,000,000	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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What types of financing are available for cannabis businesses?

While you won’t be able to walk into a bank with a business plan and be approved for financing, you still have options.

• Business loans from alternative financing companies. Some lenders like Diamond Business Loans specialized in cannabis businesses and work to meet their unique needs. You can get a standard term loan from these lenders 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.
• Real estate loans. These secured loans can be used to buy or refinance the buildings or raw land you need to run your business.
• Equipment leases and loans. Also available through alternative financing companies, cannabis businesses can use this loan to to pay for hardware, software, vehicles and more.
• 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.
• Personal loans. Got a solid credit history? You might have better luck getting approved for a personal loan, which you can use to start or fund your cannabis business.
• Home equity loans. Homeowners can also borrow against the value of their houses with a home equity loan or line of credit.

Why can’t I get business financing from my local bank?

Although cannabis products are legal in many states, it is still prohibited to buy, sell or use them 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. They could also be liable if they lend to a business that breaks state law by selling to a minor or transporting cannabis across state lines.

These risks make it impossible for you to get a business loan from an FDIC-insured bank and puts your business at risk of federal government shutdown.

Is my cannabis-based business eligible for a loan?

Although loans for your cannabis-based businesses typically won’t involve a bank, your company will still required to meet specific criteria when you apply. 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.

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 — as long as it’s legal in your state. Here are some common expenses cannabis businesses can use a business loan to cover:

• Cannabis business license fees. Starting a new business? You’ll need to get a business license to register your business with local authorities. You may also need to get a state tax license. These costs as much as $78,000 a year, depending on what type of business you’re planning on starting.
• Growhouse costs. Setting up and maintaining a growhouse is expensive — you have to have a strong grip on the indoor climate to get the best product. According to Marijuana Business Daily, starting an indoor growhouse can cost $75 per square foot.
• 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 — and might benefit from opening a line of credit.
• Hiring new staff. Bringing new people on board can up productivity and future revenue — but you’ll need to be able to pay their salaries first.
• Paying for equipment. Many cannabis business lenders offer options for leasing or buying new equipment that you need to keep things running smoothly.
• Utilities. Growhouses especially might want to consider taking out a line of credit or business loan to cover those high electricity costs.
• Rent, land or real estate costs. You’ll need a place for your business to operate. A cannabis business loan can help you rent, buy your first piece of real estate or expand your current operation.

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Cannabis business loan costs

Like any business loan, there are generally two main costs you need to pay attention to when comparing cannabis business loans: Interest and fees.

• Interest. Lenders charge a percentage of the amount you owe each month, which they then add to the amount you repay. For cannabis businesses, interest rates typically start as low as around 5% and go up to 20% or higher.
• Fees. Cannabis loans in particular tend to come with fees involved in taking out the loan. The most common is an origination fee. Lender usually charge between 0% to 10% 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 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.

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 can be used against you in court. If you’re not skilled or experienced in contract negotiations, 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.

Crowdfunding for cannabis businesses

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.

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.

Compare top crowdfunding options for cannabis businesses

Cannabis funding from an investor

Crowdfunding might be a good option for getting seed money for a new cannabis business. But once it matures, you might want to look into other investment opportunities. Cannabis-focused hedge funds like Poseidon Asset Management and Navy Capital pool money from interested investors to fund your business. Other investment sources include family offices, angel investors and venture firms.

Typically, you’ll need to provide more documentation than a business loan and how long it 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 go over.

Top investment institutions for cannabis businesses

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 August 2018, marijuana is legal in some form in 30 states and the District of Columbia.

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.

1. 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 state residents are required to follow. Look into laws expected to be enacted in the future.
2. 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.
3. 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.
4. 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.
5. Create a business plan. A good business plan sets you apart from other businesses seeking similar funding and determines your budget and future pricing.
6. Get a license. Licensing for your dispensary will vary depending on your state’s laws and can be expensive to pursue.
7. 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.
8. 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.

How to legally start a cannabis business in 2020

How to cover your dispensary’s startup costs

Startup financing is hard enough to get if you’re part of a relatively low-risk industry. Fortunately, cannabis is such a new industry that it’s slightly easier to find marijuana-friendly lenders that also work with startups. Some lenders focus more on your personal credit history than your business’s — after all most cannabis businesses are unbanked.

If you have strong personal credit, you might also want to consider taking out a personal loan to cover startup costs. Own a home? A home equity line of credit can also help you fund your startup costs. These can be a bit risky since you’ll be on the hook for paying it back, even if your business fails. But you won’t need to have a business bank account and meet the usual business loan requirements to qualify.

Can’t get either? Investors and crowdfunding sites might your best bet. With these options you might want to pay extra attention to your business plan and pitch deck if you’re going for one of these options — that’s what your investors will focus on the most when making their decision.

Bottom line

While you may likely find it difficult to secure funding for your cannabis-based 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.

Frequently asked questions

• How much money can I make in the cannabis industry?

  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 state laws and eligibility before pursuing a cannabis-based business.

• How do I start a weed farm?

  What you need to start a farm varies depending on where you live and what type of farm you want to start. Generally, you’ll need buy real estate for your grow space to put together a business plan before applying for permits required by your state. In California, this means applying for a cannabis cultivation license with the Department of Food and Agriculture (there are several different types of licenses, depending on where you plan on growing your bud).

  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 your. This can include security, seeds, lighting and more. Once you’re all set up, you can start growing your plants.

• How much does it cost to start a cannabis dispensary?

  How much you’ll need to invest when starting a dispensary will depend on the state, city and county 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.

• Can I get a medical marijuana business loan if recreational cannabis isn't legal in my state?

  You can, though you might have a more difficult time finding a traditional business loan locally. You might want to look to lenders working out of states where recreational marijuana is legal or crowdfunding platforms to connect you with investors.

  If you’re just starting a medical marijuana business, you’ll also need to confirm with your local authorities that everything is legal before you get started.

• Can I ship marijuana to customers?

  No. The US Postal Service and most major carriers prohibit sending marijuana to customers within and outside of your state of residence due to drug trafficking and other federal laws.

• Are these same options available to CBD businesses?

  In general, yes. Most lenders that are willing to work with businesses in the cannabis industry are also open to CBD businesses. You can learn more about your financing options with our guide to CBD business loans.