Raising capital for a cannabis business isn’t the same as it is for other companies. With cannabis still illegal on the federal level, most conventional financial institutions are hesitant to provide funds to businesses in the cannabis industry. That can make getting the money you need to run and grow your business difficult.
Fortunately, you have alternatives. Here are five to consider.
Traditionally, fundraising has been an offline method of collecting money. Today, you can take it online, too. Crowdfunding, which we discuss below, is a type of online fundraising.
One way to raise funds for your cannabis business is to use your own money, a method known as bootstrapping. Alternatively, cannabis fundraising might involve asking friends and family for help. Or, you can seek out investors such as angel investors or venture capitalists.
As a cannabis business, you might not be able to secure a conventional business loan. However, that doesn’t mean lending is out of the picture. There are an increasing number of alternative lenders offering options, such as:
- Lines of Credit: Similar to a traditional line of credit, this option allows you to draw from a pool of funds to cover expenses whenever you need.
- Inventory Financing: A short-term loan backed by your inventory, inventory financing allows you to pay your vendors cash-on-delivery while giving you a longer repayment term.
- Invoice Financing: You sell your open invoices for cash right away rather than having to wait for your customers to pay you.
- Purchase Money Financing: You can cover the cost of the raw materials you need to fulfill purchase orders.
3. Venture Capitalists
A venture capitalist is a person or company who provides funds for a business that shows significant potential for growth. What they’re looking for is a solid return on investment (ROI).
One thing to note about cannabis venture capital is that the investors don’t give you a loan. They essentially buy a portion of your business. In other words, they may also gain some say in how you operate.
4. Cannabis Crowdfunding
With cannabis crowdfunding, you can raise a maximum of $1 million through a large group of people. The investors themselves can invest up to $2,000 each in exchange for an incentive.
The incentives you offer are up to you. You can use a tiered system to offer a free product for a small donation and a share of your company for a larger one. Alternatively, you can use equity crowdfunding, which generally seeks out investors. In exchange for the investments, you would offer shares in your business.
5. Cash Advance
A merchant cash advance provides your cannabis business with fast, flexible financing. You can use the funds to purchase more inventory, grow your business, and more. You repay your advance by making daily or weekly repayments that fluctuate based on your sales.
Find the Cannabis Financing Solution for You
Cannabis companies might not have the same options as other businesses, but you have plenty of alternatives. Understanding what’s available will help you find the best fit for you.
If you’re looking for cannabis financing, Bespoke Financial offers several solutions. With a variety of lending options, we can help you find the best fit for your business. Visit us to learn more and apply today.