If you’re thinking about opening your own cannabis dispensary (or already have), you already know how difficult it is to navigate federal regulations, especially when it comes to finding funding. Because cannabis remains a Schedule 1 controlled substance on the federal level, no major U.S. bank will loan money to fund a dispensary -- even in states where it’s legal. However, as activists and politicians across the country have pushed for legislation, more and more avenues for funding have become available.
Regardless of the options, it doesn’t hurt to get creative. From equity financing to self-funding, here are five ways to finance your cannabis dispensary.
Self-Funding
This is probably the most popular option for entrepreneurs in any industry, but particularly in the cannabis industry, where it’s exceedingly difficult to secure financing via traditional channels. Forms of self-funding include using personal loans, asking friends or family for a loan, or using crowdfunding. When it comes to crowdfunding, always check the rules and regulations of the platform you’d like to use -- not all accept cannabis companies on their platforms.
In the past, Indiegogo has approved some cannabis companies to crowdfund on their platform. In addition, there are cannabis-specific crowdfunding platforms, too, like CannaFundr and Fundanna.
Partnerships
If you have some of the capital to start a cannabis dispensary but need a little bit of help, consider seeking out a compatible party or two that may be interested in developing a business partnership. Not only is this a great source of additional investment capital, but their skills and background may be able to supplement yours. For example, if you have experience running a business but not in growing or marketing cannabis, seek out partners with experience in cultivation and/or marketing.
Before starting a partnership, make sure to connect with a business attorney. They will be able to support you (and make sure each of you is protected) as you put together paperwork and incorporate.
Equity Financing
With equity financing, an investor (or group of investors) will provide you with the capital you need in exchange for an ownership interest in your dispensary. Some other types of financing require you to make regular payments along with interest and fees, but with equity financing, you’ll receive the money you need right away -- the trade-off is that the investor will own a stake of your company and will be able to take a percentage of your profits unless you buy them out.
With this type of financing, you’ll have access to the funds immediately, but you’ll no longer have full control over your business. If you take this route, just make sure you’re comfortable with that.
Cannabis Loans
Although cannabis loans are extremely difficult to find, there are some lenders who are willing to work with cannabis companies, with some caveats. Unfortunately, since there’s a lot of gray area and legal red tape in this space, not many of them provide thorough information online -- so you’ll need to do your due diligence. Read lender reviews, ask questions, and trust your gut instinct. If you get a strange feeling from a cannabis lender, discontinue the conversation. And always, always, always get an opinion from a trusted business attorney, regardless of the funding route you decide to take.
For more information on cannabis loans, check out this guide from Fundera.
Development Funds
Although this option depends on your location, it’s still worth looking into. This model originated in Illinois but has been gaining momentum in states where cannabis is legal, including California and Washington. It involves the state putting together a fund (the one in Illinois is called the Cannabis Business Development Fund) that’s used to make low-interest loans to social equity licensees in the state. The intention is to make sure that dispensary owners from disproportionately impacted communities have access to a source of capital, which puts them on more equal footing with individuals who have an easier time finding funding.
To learn more about social equity programs put in place by our partner Cookies, click here.
An Attorney Can Help
Securing a source of financing for cannabis companies can be very difficult, but the rewards are potentially huge in this ever-growing market. The laws regarding cannabis are always changing, too, so it’s important to understand the legal landscape of operating a cannabis dispensary in your state. As mentioned previously, always seek out a trusted business attorney with experience in the cannabis industry for advice on funding.
Note: The information found within this blog post is for reference only and does not replace legal advice.
