Sources of Loans for Dispensaries
As far as actual sources of these loans, you have somewhat of a variety to choose from. Most likely, your best bet will be with cannabis-specific financial services. However, depending on your location, peer group, business intentions, and other factors, any of these choices could potentially work for you.
Cannabis Lending Companies
There are now a substantial number of financial institutions that specialize in securing capital for cannabis-related entrepreneurs. These companies use their industry expertise and network of lenders to offer loans for real estate, working capital, and more.
Similar to traditional banks, these companies typically make money with debt financing, charging an interest rate on your loan. While rates can be higher than compared to other retail industries, they serve as a viable alternative to other investment options that require giving up equity in order to obtain capital.
Some of these cannabis financing services, such as Bespoke Financial, offer loan packages tailored specifically for dispensaries. Here are some other cannabis-friendly financial firms to consider:
Dispensary Loans Through Angel Investors
Wealthy individuals who seek to invest in startup companies, often with innovative or socially responsible brand identities, are referred to as angel investors. They are venture capitalists that act on a more individual level rather than as a group or firm. While these investors are usually associated with the tech world, there are a substantial number of angel investors in the cannabis industry.
These investors make riskier investments in emerging companies that won’t typically get support from more legacy financial institutions. As such, they generally demand significant equity in your business, depending on the amount of their loan. For some entrepreneurs, this could work to your advantage, leveraging the investor’s business experience and network, and reducing monthly interest burdens. For others, it means equity dilution that could see you losing millions of dollars down the road.
Angel investors can be found through a number of online search engines, forums, and social media channels. Check out the New Cannabis Ventures blog for their investor information page.
Venture Capitalist/Equity Financing
Venture capital is similar to angel investing, except the source of the capital is typically a collected fund of multiple high net-worth individuals, and sometimes banks. These managed funds provide financing and often industry expertise to emerging or expanding “start-up” companies.
In the context of the marijuana industry, most of these firms are invested in large-scale manufacturing and cultivating operations or cannabis-adjacent tech and fulfillment companies. Still, there are some who offer investment opportunities for retail businesses.
Consider looking into the forums and conferences held by Arcview Group, a private capital investment “ecosystem” in the cannabis industry. Another option for a private equity investor for a new dispensary is Tuatara Capital, which boasts an elaborate portfolio of cannabis businesses, including several retail enterprises.
Again, similar trade-offs exist when working with this type of investor. While you could obtain access to higher amounts of capital and strategic positioning with connections to business experts, you will obviously have to offer a considerable equity stake to have any opportunity to acquire funding.
Local Credit Unions: What’s Really Available?
While the number of local banks that allow marijuana-related companies to deposit cash has increased significantly, there are still few banks and credit unions that will give business loans directly to cannabis businesses. Actually, some of the aforementioned financial companies act as brokers and compliance consultants while sourcing their lending capital from local banks and credit unions.
Nonetheless, the last few years have seen nascent growth in loan funding from these smaller banks. In Illinois, Credit Union 1 offers cannabis business financial support packages, including real estate loans. Salal Credit Union in Seattle has multiple types of lending options on their cannabis-specific page.
As the industry grows, both credit unions and cannabis-specific financial institutions are likely to expand their loan offerings to all aspects of securing real estate and building and operating dispensaries. Consider evaluating how the interest rates, approval time frame, customer support, and industry expertise of these local credit union loans stack up in comparison to the other financial institutions that offer loans.
Social Equity Possibilities
Out of the nineteen cannabis adult-use states, thirteen have social equity programs. These programs are meant to help level the playing field in the cannabis business and attempt to rectify the inequalities and injustices for those that were disproportionately affected by the War On Drugs. The equity program generally accepts applications from people who identify as Black, Latino, female, veteran, individuals who were previously incarcerated for marijuana-related offenses, and people that come from impoverished or underserved neighborhoods.
While these social equity programs have thus far done little to bring about the necessary demographic and economic changes that are needed to level the playing field, states have added some provisions that provide actual material assistance and funding to those that qualify. As of 2022, CA, CO, IL, NY, VA, MA, and CT all have funding programs for social equity candidates.
Illinois and Vermont offer low-interest loans for startup marijuana businesses. In California, the state provides equity grants to local municipalities to help minority cannabis entrepreneurs. If you qualify as a social equity candidate, these programs are very much worth looking into to secure loans, waived fees, and expedite licensing, depending on where you want to open a business.
Cannabis Startup Funding Through Alternative Sources
There are several alternative non-institutional ways to raise capital for your cannabis dispensary. Consider asking family members or friends who are interested in your endeavors and believe that you can make it in the industry. While you might have to give up some equity or pay some interest, you will probably get a better rate than you would from a financial institution or investor.
Finally, you can always try to give it a go through crowdfunding. While you might not be able to raise the capital necessary for certain types of enterprises, you can see what type of intrigue and backing you get by putting your name and idea out to the people.
Check out the website Mainvest, where you can find crowdfunding for your cannabis business. Micro-investors will loan out as little as $100 towards your dispensary. If you have a great vision, brand identity, and message, anything is possible!
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