What is Cannabis Crowdfunding?

The cannabis industry is growing quickly. Every year, more states legalize and decriminalize cannabis, creating a huge demand. With the demand for cannabis products increasing, you’d think dispensaries would be popping up all over. However, cannabis business owners still face with a big dilemma: funding. 

Due to federal regulations, cannabis businesses don’t qualify for traditional business loans. Even though many states have legalized cannabis for medical and recreational use, the banks are federally insured. 

These federal regulations mean cannabis businesses need to be more creative with their funding. One way cannabis funding can be achieved is through crowdfunding.

What is cannabis crowdfunding? This method of funding allows cannabis business owners to raise funds through a large group of people. In return, the owner offers incentives like shares in the business.

How Does Crowdfunding Work?

Crowdfunding allows investors to invest up to $2,000 for a percentage of the business. Cannabis companies are allowed to raise a maximum of $1 million through crowdfunding.

There are two types of crowdfunding:

  1. Regular Crowdfunding: This type seeks out donations. It comes with a tiered reward system that may include free products and/or a portion of the company. For example, a $10 donation might get you a free product, while a $2,000 donation could get you a percentage of the company. If you’re trying to fund your cannabis business thorugh regular crowdfounding, make sure to research your state and local laws to make sure your rewards don’t violate any of them. 
  2. Equity Crowdfunding: This type of crowdfunding seeks out investors. It gives a piece of the company to its backers and is highly regulated by the Securities and Exchange Commission (SEC)

Benefits of Cannabis Crowdfunding

With banks not risking federal prosecution for funding cannabis business, crowdsourcing is revolutionizing the industry in many ways.

Meeting demand

Cannabis legalization increases demand. This demand cannot be met without enough producers and dispensaries. Crowdsourcing is creating business and jobs in the cannabis industry, allowing the demand to be met.

Preventing monopolies

Since cannabis has only recently been legalized in a lot of states, and there are no options yet for federal funding for the cannabis industry, large agriculture businesses have a big chance of monopolizing the industry. The popularity of crowdsourcing gave individual growers a chance to succeed by producing new high-quality products.

Enabling enthusiast investor

Some cannabis users want to contribute to the growth of the industry. Cannabis businesses that crowdsource funding acquire loyal clientele through donors and investors.

Going global

Crowdfunding allows international investors the opportunity to invest in the American cannabis industry. The demographics behind a company’s international funding may also indicate areas outside of the US with interested potential customers that the business could expand to.

Bespoke Financial is Here to Help

Another way to help finance your cannabis business is through Bespoke Financial. We are the first licensed commercial lender focused on growing the cannabis industry. Bespoke Financial is here to help you grow your business by offering cannabis business loans. Whether you need inventory financing, purchase money financing, or invoice financing, we’re here to help you out.

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