Step 6: What you need to know about funding a cannabis business
Finding funding for any business is a challenging process. When launching a normal start-up, the repayments and interest on small business loans can often be an unbearable burden.
If finding capital for a regular business is challenging, consider how much harder it will be for a cannabis business. There is an increasing number of financial institutions servicing the US marijuana industry, but credit is still rarely available for a cannabis business.
“Getting funding for a cannabis business presents very unique challenges because you can’t just get a small business loan, and banks are not going to lend money to you either,” says Marvin Washington, Super Bowl champion and cannabis entrepreneur.
Where should you look for funding?
Retailing weed isn’t legal yet in South Africa, but if your business is going to be associated with private weed users, this could make your business seem high risk for financial institutions. There are however, alternative options when it comes to funding your marijuana-related business.
Seed Capital
Your first seed round will most likely be completed with money from family and friends or your personal savings. This will limit your options when launching your business but can work in your favour if you plan it correctly.
“A seed round is aimed at building a product, service or technology; and getting some early traction, typically in the form of beta or pilot customers,” says Scott Greiper, President of Viridian Capital Advisors. “This will help you establish some reference cases. Investors will want references from clients in the future.”
Alternative financing options
On the other hand, not everyone starting up a business is surrounded by family and friends who are able to invest in a “risky” business. Not every alternative funding option will work for your business. The type of business you’re trying to finance will influence the type of funding that will best suit your business.
You can find some other alternative funding options here in our Ultimate Funding Resource.
Next stage funding options
Once your business has been running for at least a year you can approach financial institutions with a solid track record of your finances. If you can prove your business is viable with solid growth, a financial institution might reconsider and give you capital to expand your business.