As the US collectively and patiently awaits further progress on the SAFE Banking Act, cannabis funding continues to negatively affect market entry for craft and small start-ups. Why? Because cannabis is a schedule-1 ‘drug’ under the Controlled Substances Act, many big-time banks, lenders, and investors can’t or won’t participate in cannabis transactions not insured by the FDIC.
Of course, that doesn’t mean there aren’t other creative ways to break into the market. In fact, as the world of ‘funding’ evolves, the opportunities to gain funding for cannabis startups have evolved, too.
Today, you have more options than ever for starting an edible business or starting a canna business with unconventional ways of funding. So, if you’ve ever dreamt of being an edibles manufacturer or launching your own branded line of cannabis goods - this is the ultimate guide for you.
Keep reading to learn the latest in cannabis funding solutions and the top five ways to secure cannabis funding in 2022-23.
Cannabis Funding 101
It’s no surprise that aspiring entrepreneurs want to get into the cannabis market. Especially considering the industry’s global market was estimated to be worth $21.3 billion in 2020 and is expected to reach $55.9 billion by 2026. But still, with federal restrictions on raising and gaining capital, the industry is seeing a decline in cannabis startup funding.
In 2022, only 41 cannabis companies globally have been successful at raising capital or venture funding. Altogether, the companies have raised $294 million over the year, which is less than ⅓ of all the funds raised in just the first half of 2021. If the current pace continues, experts cite that 2022 is on track to be the lowest fundraising period for the industry since 2017.
But, long-time cannabis advocates and multi-millionaires themselves, like Snoop Dogg, are using their positions for good use when it comes to cannabis funding. The rapper recently became the director of Casa Verde Capital, which is a venture capital fund that specifically focuses on cannabis startup funding. So far, the fund has been successful with a portfolio that includes notable brands like Dutchie, Cannalysis, and Green Tank.
Beyond celebrity clout, there have been some new movements when it comes to federal legislation addressing cannabis funding concerns. The Capital Lending and Investment for Marijuana Businesses, or CLIMB Act, was recently introduced to the US House of Representatives and sets out “to permit access to community development, small business, minority development, and any other public or private financial capital sources for investment in and financing of cannabis-related legitimate businesses.”
As we await definitive changes, rest assured there are still alternative ways to source startup money for cannabis businesses. So, next, let’s cover the four most innovative cannabis funding solutions for you to explore.
The Top Four Cannabis Funding Solutions
Let’s be honest - the cannabis industry and its players are creative, to say the least. To answer the question, of how to raise money for cannabis, we’ll cover the four ways these visionary cannabis startups have found success.
Venture Capitalists and Angel Investors
The search for angel investors for marijuana is on the rise, as is the need for cannabis-specific venture capitalists. To show their effectiveness, cannabis startups who have used venture capitalists or angel investors for marijuana market entry include -
- Weedmaps
- Leafly
- Flowhub
- Eaze
- Surterra Holdings (Parallel)
- LeafLink
If you’re not familiar with the term ‘angel investors’, it refers to high net worth individuals - who act like ‘angels’ for some by investing a portion of their worth into startup brands. As noted by Cannabis Business Times, often angel investors for marijuana are more apt to invest in businesses that -
- Have a low capex, aka low capital expenditures.
- Require low start-up costs.
- Are ‘mom and pop’ in nature.
Traditional Business Loan
Of course, don’t rule out traditional business loan options either. Smaller banks and financial institutions are increasingly offering and facilitating cannabis business loans as the industry and legalization grow more widespread and mainstream. In the case of traditional financing, you’ll want to be sure your business plan and personal finances are as buttoned-up as they can be.
That’s because traditional banks and institutions will require, review and dissect these more than other financing routes. This means increasing your credit score as much as possible, exploring the possibility of a co-signer, and saving up for potential down payments.
Asking Friends and Family
We all get by with a little help from our friends. But cannabis startups are relying on friends and family more than most legitimate industries. Many cannabis companies' first equity investors are those close to the founder, but the logistics can be tricky to manage personally and professionally. To be transparent, you’ll want to be sure your family or friend investors know the risks of the industry vs investments in traditional markets.
Again, similar to traditional loans, when going to friends and family for starting a cannabusiness, make sure the terms of your business plan and paying out investors in stock, or capital, are clearly defined.
Crowdfunding
Crowdfunding has been a successful capital-raising route for thousands of big-time and small-time brands, cannabis included. Notable platforms like Kickstarter, Mainvest, Indiegogo, and MicroVentures have been found to be 420-friendly, and now cannabis-specific crowdfunding platforms exist too.
These platforms, including CannaFundr and Fundanna, give cannabis startups the opportunity to source funds by sharing their business plans and facilitating captivating campaigns to drum up support from those in favor of and interested in investing in cannabis without other ways to do so.
Starting a Cannabusiness - Maximizing Your Return on Investment
No matter which route you take, you’ll have to consider just when you’ll make a profit or how quickly you’ll see a return on your investment. While you’re thinking outside of the box to secure cannabis startup funding, continue the same type of thinking for licensing and manufacturing, too.
A traditional license isn’t the only avenue to starting a cannabusiness, especially when launching in California. California is one of the few states that offers type-s licensing as a fast track to getting approved while using a primary type-s licensed facility to begin manufacturing in an expedited fashion.
My Green Network is proud to be the premier type-s licensing facility in southern California that helps aspiring cannapreneurs achieve their dreams of getting into the cannabis business through co-manufacturing, white label or private label goods, and shared cannabis cloud kitchen space.
The faster you begin producing, the faster you begin turning a profit. So, bookmark this guide on how to get funding for cannabis business licensing, and keep My Green Network in mind as you continue your journey towards cannapreneurship.
Get in touch to schedule a tour or to learn more, now.
