How do you get a cannabis business loan?

Given the wide acceptance of cannabis in the country, starting a cannabis business doesn’t seem like such a bad idea. It’s a brilliant idea that entrepreneurs want to get into a relatively new industry in order to carve out a niche for themselves as soon as possible.

Unfortunately, not all of these aspiring cannabis entrepreneurs have the capital to get started, and thanks to federal regulations on the drug, many are ignorant of the cannabis business credit available across the country. While it can be difficult to get one from a traditional financial institution, there are willing investors, venture capital firms, and crowdfunding firms ready to raise much-needed capital.

If you’re in this group, or have someone who belongs here, read on for a comprehensive guide to getting a loan for your cannabis business.

The cannabis industry in the United States

Running a cannabis business is not an easy task, the value chain is quite broad. This makes it capital intensive, especially if you want your business to stand out from the crowd.

Cannabis is still classified as a List 1 drug and is therefore banned at the federal level. The established rules have also made it difficult for financial institutions to lend to cannabis entrepreneurs.

Regardless, several cannabis stores are being set up and the demand for more breeders, manufacturers, and processors is growing every day.

Recent evidence shows that the federal government tends to pass state law to legalize cannabis, but this could take at least a year or two to move forward. When these legalization processes begin, banks will begin to loosen up enough to provide significant funding and support services to cannabis entrepreneurs without fear of federal law enforcement.

For now, it remains illegal, so this article will explore other alternative options for raising cannabis business capital.

Sources for cannabis business loans

Right now, going to a bank for a cannabis business loan might be a waste of time. It is advisable for entrepreneurs to network and find willing lenders through other channels.

Investors

The cannabis industry is a fast growing industry that has billions of dollars to be made. There are several individuals or groups looking to pump big bucks into the business. All you have to do is position yourself and your company in the right place.

These investors could come as venture capitalists, these are extremely wealthy investors willing to provide the funds to grow a relatively new or small business. Venture capitalists provide the capital in exchange for equity.

These investors could also be angel investors. Unlike venture capitalists, angel investors have less money to invest. They also stick with it to help companies get started, they tend to be silent partners in business.

To find interested investors, you can search cannabis business directories. There are also large group social media platforms filled with potential investors for cannabis companies. These groups are common on LinkedIn and Facebook.

Another option is to attend cannabis-related events where you can meet and network with investors. This is how you meet potential investors personally, ideally with an already drawn up business plan and a great pitch.

Venture capital firms and angel investors are extremely helpful for cannabis startups looking for funding.

Crowdfunding

Today, this is one of the most innovative ways to fund a new business. This involves engaging a diverse population for small investments that do not have to be paid back. It is not that complex, a large number of people give you a small amount of money, you do not give away any equity and you do not have to return the funds invested. However, it can’t hurt to offer free products, goods, or other special services to attract more people to your business.

There are crowdfunding sites for the cannabis industry, the best two being CannaFund and Fundanna. These sites bring like-minded people in the cannabis and hemp industries together and help new cannabis entrepreneurs launch campaigns and get the funding they need.

Fortunately for cannabis entrepreneurs, US securities and

Exchange allows every US citizen to invest up to $ 2,200 in startups in order to participate in the company. Corporations have raised over a million dollars by offering their shares in return for capital investments.

Personal Loans

If you have a solid credit rating, you can indirectly get credit for your business by submitting an offer for a personal loan. Before doing this, make sure your lender knows what you are going to use the funds for to avoid future problems.

family and friends

You can request funds from your family members as well as your friends. The services of a law firm must be used to fix the kinks and create a legally binding contract. In this way everyone can be held accountable.

Equity

Equity can be offered to the cannabis business in two ways. Private Equity Financing and Home Equity Loans. Private equity firms offer short-term, high-interest loans, they sometimes provide capital to get a huge stake in the startup. Home equity firms offer Yin a line of credit with the same value as your home.

SECURE BANKING ACT

These problems could be a thing of the past if the SAFE Banking Act 2021 is passed as soon as possible. This would allow traditional banks to offer financial services to companies in the cannabis sector. That said, the banks would have no risk of being penalized for being linked to the cannabis business.

Wrap up

Make sure to get your facts and business plans in order before reaching out to any of these loan providers for funding. Most importantly, be aware of the state’s cannabis legalization laws and make an estimate of the total funding your startup will require.

If you’ve tried all of the above without taking out a loan, you can consider moving your business to a CBD-related business. CBD companies are technically legal and accepted by more investors than pure cannabis companies.

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