Updated January 5, 2022
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For the purposes of this article, the “Cannabis Industry” refers to marijuana grows, marijuana dispensaries, cannabis distillates such as CBD products that contain THC or cannabis edibles. There are other types of cannabis businesses that may not be covered here but may qualify for business funding. Here we will discuss options for cannabis business loans and other marijuana-related business financing needs.
While cannabis financing is not considered mainstream, there are several short-term loans, real estate financing, and alternative finance options available.
Regulatory Considerations of the Cannabis Industry
Presently, cannabis companies can legally operate in only a small handful of states. The Federal Government still has many restrictions on recreational marijuana and medical marijuana. Entrepreneurs seeking cannabis business funding should ensure that they are operating in a state where this business activity is legal to qualify for cannabis funding.
Many traditional financial institutions will not provide small business loans for growers or dispensaries regardless of state laws due to restrictions on the federal level. In addition, it may even be difficult to open a bank account for a marijuana business; even if your home state has legalized the cannabis business. That is because banks are regulated by the federal government.
For the same reasons, the marijuana industry has little to no access to credit card processing for the sale of marijuana products as credit card processing also falls within the scope of the Federal Government.
With all the restrictions placed on financial systems to comply with federal laws, cannabis business owners and related businesses must look at alternative sources for cannabis business loans. Fortunately, there are several financing options and loan programs to suit marijuana business needs and get working capital.
Large Capital Expenses Associated with Marijuana Businesses
In States such as Colorado (one of the more progressive States on marijuana business legalization), permits and licenses for the cannabis industry are no longer being issued. That means that anyone wishing to enter the marketplace legally must purchase their permits in the secondary market. In other words, they need to buy someone else’s existing cannabis license and licenses.
From a commercial perspective, licenses and permits have been known to sell for several hundred thousand dollars. The good news is that buying an existing growth operation will also come with a production and sales figures history. Business owners who purchase existing cannabis grow can use past financial and production figures to apply for cannabis business funding.
Lights, Electricity & Equipment Financing
Lights and electricity are an integral part of operating a marijuana grow operation. Production is generally measured and projected by the amount of lumens output, wattage, hours of operation, and several weeks in the Seedling, Vegetative or Flowering phase and several lights.
Business owners can then use a grow light cost calculator to use their cost per kWh (per kilowatt-hour) to project electricity costs.
In addition, the cannabis growth operation requires constant use of fans for circulation. The lights, fans, and the electricity to run this equipment can be very costly, as can be their maintenance. A marijuana business plan should consider the cost of operating and maintaining lights, fans and electricity through 2-3 grow cycles.
Keep in mind that cannabis equipment may be able to be leased under a financing option called: equipment leasing. Leasing equipment is an effective funding option in addition to other types of financing such as a cash advance, small business loan, or line of credit. Leasing will lower out-of-pocket costs and may allow you to keep your cannabis equipment up-to-date more effectively and boost your available cash flow.
Generally speaking, marijuana grows businesses require open spaces such as warehouse-type facilities. These facilities are usually less expensive to build, lease or purchase, but they are almost always subject to specific and strict zoning regulations.
Purchasing a building to house, a grow may be one of the more cost-effective financing solutions (long-term) but will require a down payment.
Most regulatory agencies will require the operator of a dispensary or grow business to implement video surveillance, alarms, and coded vital entry systems as conditions to obtain and retain your license. These systems could reach into the tens of thousands of dollars.
Applying for a Cannabis Business Loan
As mentioned above, lenders vary in their policies for financing marijuana businesses. Further, you may find it very difficult to find funding options for a startup. For startups, this usually means finding private lenders or taking personal loans.
For cannabis companies that have an operating history, the application process is very much like applying for a conventional loan. You may be asked to provide the following:
- personal credit history for all borrowers
- bank statements or financial statements
- credit score check
- proof of licensure
FAQ: Can Cannabis Businesses Get an SBA Loan?
Qualifying for a Small Business Administration (SBA) loan is still a work-in-progress according to some cannabis industry sources. As of 2021, companies that are deemed a “Direct Cannabis Businesses” are ineligible for an SBA loan. A Direct Cannabis Business is generally defined as businesses that directly touch the plant such as: cultivators, dispensaries and processors.
However, “Indirect Cannabis Companies may be eligible for getting a federally guaranteed SBA Loan. Examples of indirect Cannabis Companies may include: lighting manufacturers, legal advisory and accounting firms and advertising companies that services cannabis businesses are a few. This remains somewhat of a gray area in the law and SBA policy and is usually determined on a case-by-case basis.