As marijuana legalization continues to spread across the US, there’s no shortage of entrepreneurs out there looking to get a foothold in the lucrative cannabis industry. But for those without the necessary start-up capital, obtaining a bank loan to turn a vision into reality remains a big hurdle.
That’s because while more and more states reform their cannabis laws and institute legal marijuana markets, cannabis is still illegal at the federal level. As such, conventional financial institutions are wary of handing out loans to state-legal marijuana businesses because if the federal government does decide to intervene, who’s to say the bank’s going to get their money back?
For large marijuana industry players, this isn’t such a big issue. They can afford the initial costs of setting up a cannabis business, whether it be as a cultivator, manufacturer, processor, retailer, or some combination of these. But for a small entrepreneur, starting a capital intensive enterprise like a marijuana business can be prohibitively expensive without the help of a loan. So, where to turn if you can’t rely on conventional financial institutions or banks for support?
There are other options for securing capital, you just have to get a little creative.
While asking your bank for a marijuana business loan is likely to be met with a polite “No,” there are other kinds of investors out there who are interested in putting their money in a fast-growing, multi-billion dollar industry. Venture capitalists look to invest in new, small businesses in exchange for equity in the hope of spectacular returns should the company grow. Another breed of investor is the angel investor. While they typically don’t have the deep pockets of venture capitalists, angel investors are more likely to believe in the business’s mission and get their hands dirty from the beginning to make it a success.
You can meet either type of investor on marijuana business directories, or on social media platforms like LinkedIn and Facebook where you’ll find cannabis-focused business groups. If you prefer to meet potential investors in person, you could consider attending marijuana business events like industry expositions or conferences with your business plan at hand and a pitch that’s ready to be delivered.
As well as seeking a few large investors, however, you could also try courting a large group of people for small donations with no expectation of a return. You won’t give away equity or pay people back, but it’s nonetheless prudent to offer some kind of product or service to donors to thank them and drum up more interest in your business proposal.
3. Personal loans and contributions
While banks may be reluctant to offer a cannabis business loan, they may be more willing to provide a loan to you as an individual if you are a long-term customer with a solid credit history. But be sure to be honest about what you will use the money for – banks tend not to like surprises!
If securing a personal loan isn’t an option for you, then you could also ask family and friends to help you out if they can. To put their minds at ease though, get any such arrangement down in writing in a legally binding way.
4. Cross your fingers for the SAFE Banking Act
If Congress passes the SAFE Banking Act then banks would finally have the peace of mind to offer financial services to state-legal cannabis businesses that they have for any other type of business. The House has passed the SAFE Banking Act four times now. The Senate had no interest in doing so under Sen. Mitch McConnell’s leadership, and now Sen. Chuck Schumer is prioritizing a more comprehensive cannabis legalization bill.
5. Considered CBD?
If none of the above is viable for you, then perhaps you might want to consider getting in to the CBD industry. Unlike marijuana, it’s federally legal so you’re much more likely to be approved for a business loan. And as federal cannabis regulations change (which they are likely to do), you can pivot your CBD business toward other marijuana products.