Special Considerations for Cannabis Loans

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When you are looking for cannabis loans, it’s important to understand the risks involved in the industry. Conventional lenders may not be willing to lend money to such a nascent industry with controversial implications. However, that doesn’t mean funding isn’t available to daring entrepreneurs. Let’s start with a look at the risks and challenges unique to cannabis businesses.

Why Is Legalized Cannabis Still a Risky Business?

Here are some of the top risks impeding future growth and sustainability:

  • market and pricing uncertainty
  • legal risk, such as banking and insurance
  • supply‐chain threats (Can you get enough product for your enterprise?)
  • financial risks

It’s crucial that all levels of the industry fully understand these risks and to safeguard against them with robust risk management strategies. Some risks have industrial and financials consequences, such as difficulty in getting adequate insurance, that make it hard to secure funding.

Other risks are still emerging as legislation at the state level continues to vary from federal legislation, with no resolution in sight.

Uses of Cannabis Plant

The U.N. Office of Drugs and Crime (“UNODC”) found that cannabis is the most extensively used and available drug in the world. Whether it’s legal or illegal seems to have little impact on availability. According to the report, cannabis is harvested in 135 member states, or about 92% of countries in the world. Compare this to the nearly universal recognition of cannabis’ therapeutic and medical benefits, and it makes sense that many countries have now legalized the cultivation, sale and open use of cannabis for medical purposes.

It is the medical usage that acts as an impetus to legalize cannabis products. That’s why most states have enacted some level legislation for cultivating the plant for medical purposes. Many countries have legalized it at the national level. This includes Canada, Spain, Uruguay, The Netherlands, and India, which will pass laws legalizing recreational use in coming years.

More About Cannabis

Cannabis is officially part of the Cannabaceae family. Its genus is a flowering plant native to Central Asia and India. The three main species are Sativa, Indica, and Ruderalis; and all three are subspecies Cannabis Sativa. These species can be identified by varying plant structures and leaves.

Because the industry is very new, large-scale independent wholesalers haven’t yet emerged, making reliable extraction and manufacturing less stable than more established agricultural and manufacturing enterprises.

Manufacturing organizations are attempting to take a bigger role to stabilize supply and pricing and further market efficiency. One of the impediments to this goal is the lack of available funding. That’s one of the reasons it’s so important to find a reliable funding source that won’t discriminate against the nature or newness of cannabis-based products.

Who Are the Important Actors in the Industry?

Cannabis businesses are usually classified based on the activities they perform. The value and supply chain consist of three types of businesses, including:

  1. Raw Material Providers (cultivators, seed distributors)
  2. Manufacturers that process raw materials (manufacturers)
  3. Ancillary Service Providers, or the retailers and support organizations as well as the technology and product companies

Tips for Approaching Cannabis Lenders for Loans

Many businesses that are turned down by banks and traditional lenders have found funding through more flexible organizations willing to take a risk on new businesses. Here are some tips for vetting out lenders who can help without wasting precious time.

Be Professional

A lot of companies are trying to jump on the bandwagon of legalized marijuana. To stand out from the crowd, it’s important to have a plan and to always be professional. No matter how laid back the industry is as a whole, business owners must act and dress the part if they want to successfully secure funds to grow their cannabis enterprise.

That said, now is an excellent time for serious and organized entrepreneurs to position themselves early in what may one day be a $1 trillion global industry. Don’t be intimidated by the competition, but be prepared to present your case in a convincing manner.

If you don’t have a detailed business plan, put one together before meeting with potential lenders. The more research you have, the better your chances are of obtaining the funds needed to start or expand your cultivation, manufacturing or product-based business. The main thing lenders want to hear is how much you need, how you will use the funds and when you anticipate paying it back.

Bring Proof of Your Claims

Cannabis lenders see unsubstantiated claims about business models every day. If you claim your growing the most effective medical cannabis, bring a lab report that shows the THC content as well as other convincing selling points.

Work on Your Credit Score

It’s important to work on your business or personal credit scores if you want to be successful in obtaining funding.

“Most private cannabis lenders want to see personal and business credit scores of 700 or better. The competition for cannabis business loans is fierce and growing meaner. Make sure your credit score is up to par before applying for a capital loan from companies that fund marijuana businesses. It’s also a good idea to bring proof of any successful investments you have benefited from in the past,” according to Cannabis Credit Lines, an online lender for cannabis businesses.

Even in states where cannabis is illegal, traditional banks won’t touch the industry. Federal laws forbid banks and credit unions from handling money associated with marijuana. Even private lenders require substantial evidence that the business is likely to succeed. However, business owners who demonstrate their professionalism and passion are bound to find the funding they need at fair rates.

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