Where to Find Cannabis Business Loans in 2022

March 18, 2022

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Cannabis businesses can be incredibly lucrative, but starting up and funding them can involve a ton of red tape and difficulty due to the federal government’s cannabis regulations.

The US Drug Enforcement Agency (DEA) considers cannabis a Schedule I substance, meaning that they classify cannabis as having, “no currently accepted medical use and a high potential for abuse.” In other words, cannabis is illegal on a federal level.

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That classification makes funding a marijuana business a difficult proposition. As a federal distinction, that Schedule I designation means that no FDIC-insured lender can dole out cash that participates in the cannabis industry, and the low-interest SBA loans available to other industries are not available for cannabis business owners. Even if your state has legalized recreational use, the federal regulation prohibits the participation of many lenders.

Luckily, more and more states are legalizing cannabis for recreational use, and the growing market is creating more and more opportunities for funding for cannabis companies in the short term. While those funding options won’t include some of the larger financial institutions and traditional lenders that other businesses have access to, there are plenty of options out there for entrepreneurs looking to fund their cannabis business needs.

Entrepreneurs can choose to enter the cannabis industry at any of several production levels, from growers to processors to brick and mortar dispensaries. No matter which level or levels you’re interested in taking part in, business financing will be a bit complicated.

Costs of Running a Cannabis Business

Running a cannabis business is simultaneously exactly like, and nothing like, running any other business. You’ll still need startup money, real estate, working capital, advertising, and credit. But on top of all that comes the layer of legal hassles far beyond what business owners in other industries ever have to deal with.

On top of that difficulty, there’s the fact that the cannabis industry often involves considerable vertical integration. Many dispensaries are owned and supplied at least in part by growers owned by the same parties, and often produce their own ancillary products as well.

Licensing

Another pricing issue that cannabis related businesses have to deal with is licensing. In some states, like Colorado, licenses to sell recreational marijuana are no longer available through the state. They are, however, available for secondhand purchase. And because operating a cannabis dispensary can be such a lucrative business, these licenses can cost well over six figures. In states like Ohio, the cost to grow can include a $200,000 annual licensing fee. Regardless of the state and which types of cannabis business you’re looking to operate, you’ll likely need outside funding to help with licensing your company.

Real Estate

Real estate is an expensive and necessary part of the marijuana industry. If you’re looking to run a grow operation, you’re going to need a substantial piece of property just to grow the plants, let alone processing THC into sellable products. On top of that, there’s local ordinances to consider. Zoning and usage laws will dictate the areas where cannabis companies will be able to operate.

The other thing to remember with real estate is that a sizable down payment will likely be necessary, so on top of a six-figure purchase in most cases, you’ll need to have a considerable amount of money available.

Equipment

It takes a ton of equipment to enter the cannabis industry. First, there’s the equipment needed to successfully grow cannabis plants. That will require specialized lighting, heating, and air circulation equipment, like fans and respirators. You’ll also need safety equipment along with everything needed to produce the end products you’re hoping to sell, whether that’s a gummy product, baked goods, distillates, tinctures, or even topical body products.

On top of all of that equipment and real estate, consider that many successful cannabis companies participate in several levels of the process.

Take Lume Cannabis Co. in Michigan. They grow their own flower, including proprietary strains, package it as edibles, flower, pre-rolls, tinctures, vaporizers, concentrates, and topical products, all available at five dispensaries throughout the state. There’s even CBD options. In effect, they operate five different businesses in one.

That’s not the only path to success in the cannabis industry, but determining the costs associated with opening a marijuana business means having a clear idea of just where your company fits into the story.

Funding options

Loans

While larger financial institutions like large banks and credit unions probably won’t be able to lend money for cannabis companies, there are specialized lenders in many states that lend specifically for this purpose.

Abaca, for example, is a financial platform designed specifically to provide a space for cannabis businesses. That means they offer bank accounts, cash handling, and even term loans for new and existing cannabis businesses. They’ll require several months of operations, a personal guarantee, and typically some form of collateral, but they’re a great option for fully compliant financing options for cannabis businesses. Their website also highlights the multifaceted nature of the business: they’ve financed grow builds, marijuana dispensaries, and even acquisitions.

Similarly, Diamond Business Loans, operating out of California, is very open about the fact that they’re willing to do business with cannabis businesses. They offer three primary cannabis business loans. First, unsecured cash loans. In exchange for not putting up collateral, borrowers must have a credit score of 680, and loans are a minimum of $20,000. Secondly, they offer real estate loans. The minimum loan size for these products is $800,000, and they require a substantial down payment. Finally, they offer equipment financing. Given the multifaceted nature of the cannabis industry, there’s a ton of equipment involved. Growers have industrial equipment and agricultural products, processors require the sort of industrial cooking and production equipment that a bakery might, and even dispensaries require considerable equipment to operate.

Another lending option is Bespoke Financial. They’re able to offer a variety of business funding options designed to fit several purposes in any cannabis business. Those options include a line of credit, which allows business owners to withdraw cash up to a particular limit and only pay interest on what is withdrawn. They also offer invoice financing. If you operate a grow operation and have outstanding invoices, for example, Bespoke Financial with pay you the full invoice amount. That way, instead of waiting for customers to pay that invoice, you’re able to increase your cash flow immediately. Check out their website to see the different offerings by state.

Finally, there are alternative lenders like iCapital Funding. When you find an alternative online lender willing and able to provide cannabis loans, you’re able to find a financing solution that can move very quickly. iCapital, for example, is able to get you as much as $500,000 within 24 hours.

Obviously, there are certain specialized lenders willing to work with cannabis business owners, well beyond those listed here. Depending on the state you’re operating in, whether you’re offering medical marijuana or recreational products, your business history, and your credit scores, you’ll be able to find someone to work with. However, lenders will use several techniques to protect themselves from risk: expect higher interest rates, personal guarantees, or collateral requirements.

How Can I Prepare?

The application process for the cannabis business is similar to the process for going through any sort of small business loan, with the added complication that the lenders will likely need to see extensive personal credit information.

So if your personal credit is a bit lower than you’d like, consider taking time to boost your scores, even if its by 50 or 100 points. Showing potential lenders that you’re personally creditworthy will go far in ensuring that they see your marijuana business as a strong bet.

You’ll also need to prepare the documents needed to apply to any loan program. That list can include:

  • Completed loan application 

  • Background information of borrower(s)

  • Business credit scores

  • Personal credit scores

  • Sources and uses of funds

  • Business liabilities or expenses

  • Business bank statement

  • Proof of licensing

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