Cannabis Business Loans: the Best Options for Marijuana Entrepreneurs

The cannabis industry is a high-growth market — and you’d better believe that won’t be the only pun in this article. Last year, there were nearly $10 billion in legal sales of cannabis products. The year before, in 2017, the global cannabis market grew by approximately 37%. Despite Canada’s nationwide legalization in 2018, the vast majority of global cannabis revenues are still generated by the United States legal marijuana industry, which accounts for about 90% of worldwide industry revenues.

U.S. dominance of the cannabis market isn’t likely to diminish soon, as only ten states have fully legalized recreational use. Only three states retain strict prohibitions against all forms of cannabis or marijuana use, but most states that have loosened their restrictions only allow medicinal use for people with certain debilitating conditions. Even then, most states with looser laws limit users to low-THC varieties of cannabis, typically offered as various formulations of cannabidiol, or CBD. As the move to “legalize it” picks up steam nationwide, you’re likely to see many more entrepreneurial opportunities open up in the cannabis industry.

Blue = recreational
Dark green = medical
Light green = medical (limited THC)
Gray = no legal status
Red D = decriminalized

The high costs of cannabusinesses

However, even in recreational-use states, the cost of starting a cannabusiness can be daunting. Regulated cannabis dispensaries cost, on average, $775,000 to start up. Even unregulated dispensaries tend to require at least $100,000 in startup capital.

On the flip side, an average regulated dispensary will gross about $3 million in annual revenue. Unregulated shops gross an average of $740,000. Operating costs can be steep, but a reasonably savvy dispensary owner will still walk away with hundreds of thousands of dollars in operating profit every year.

It’s clear that the high costs of starting a cannabis-based business are well worth it in the long run. Unfortunately, few entrepreneurs can enter this ultra-competitive market with enough liquid capital to cover every cost. This obstacle once kept most of the savviest cannabis entrepreneurs from joining the market, but relaxing laws have finally made it possible to seek legitimate outside financing — including, for the first time, funding from reputable lenders.

Whether you’re a brand new ganjapreneur or an experienced marijuana executive, you’ll be glad to see the growing range of financial options available to help you build your business. We’ll take a look at some of the best options, but first, a few caveats…

What the law will (and won’t) allow

If you need money for a cannabusiness, don’t bother going to your local bank for a loan.

As long as marijuana remains a Schedule 1 drug at the federal level in the United States, any federally-chartered and federally-regulated entity is effectively barred from participating in the industry in any way. Any bank covered by the Federal Deposit Insurance Corporation, or FDIC, simply isn’t able to extend any cannabis industry financing, or even handle money from cannabis-related businesses in checking or savings accounts.

nobody knows what is really going on here but there is money and grass in this picture
a young businessman rejects an offer of money for his precious grass in a glass

This means you won’t be able to work with banks that operate in multiple states, like Wells Fargo or Chase. However, as state laws loosen, some state-chartered banks and credit unions have found ways to work with cannabis entrepreneurs.

This doesn’t necessarily mean you’ll be able to secure cannabis business loans from a credit union, as any transaction worth more than $5,000 must be reported under the Bank Secrecy Act. The paperwork and regulatory hurdles are likely to be too much to clear for any bank to lend you money for a cannabusiness, no matter how strong your business plan or how sharp your expertise. You might be able to process payments and deposit profits with certain local banks in states where marijuana is legal for recreational use, but you’ll need to look elsewhere for any significant funding.

It’s important to know all the laws regarding legal cannabis sales at the local, state, and federal levels before becoming a ganjapreneur. If you don’t have a good attorney, one well-versed in both business and criminal law, consider setting aside any funds you receive to pay a qualified lawyer’s retainer. You certainly don’t want to get caught without the right papers, and that’s true whether you’re trying to roll up a fat one or trying to protect your freedom and finances.

Now, if you’ve gotten your legal situation sorted, and you know exactly what you need and why, you can start investigating funding options. Depending on the type of cannabusiness you’re starting, and its stage of growth, you might find yourself looking at several different types of funding. Amerifi works with well-qualified marijuana-related businesses and cannabis entrepreneurs on a wide range of small business financing solutions.

Types of cannabis business loans

The fastest and easiest type of financing available to most entrepreneurs — whether they’re in the cannabis industry or are simply operating a dry cleaner or restaurant — is working capital.

Also known as a business cash advance, working capital is available to small business owners with as little as three months of operating history. It can be funded in one working day at amounts up to $1 million, but working capital is often available in smaller amounts to cover short-term financing needs, such as payroll, equipment repairs, inventory purchases, or unexpected losses.

For less retail-oriented businesses, such cannabis growers or cannabis cultivators, or high-volume product manufacturers, there’s cannabis equipment financing and leases.

Much of the cost of cannabis retail is tied up in real estate (we’ll get to that one soon), licensure, and inventory, but wholesalers often require huge equipment investments to get going at scale. A large growing operation can involve complex systems of pumps and tubing to keep plants well-watered, and dozens or hundreds of costly high-wattage grow lights. Some processing equipment to convert fresh flowers into concentrated chemicals or edible products can cost tens or even hundreds of thousands of dollars.

An experienced financing partner will understand the long-term resale value of your costly equipment. They’ll help you structure a loan or lease that not only allows you to operate profitably while making good use of your new stuff, but will also protect them from losses in the unfortunate (and hopefully unlikely) event your business turns out to be half-baked.

Most cannabis businesses need space to operate. That’s where commercial real estate loans can come in quite handy.

a medical marijuana dispensary in Oregon with hippie-style branding
Mary Jane’s Medicinal Marijuana Shop in Eugene, Oregon

These loans are typically available only to more established operators, particularly those who already have a history of successful commercial real estate ownership. However, if you can get it, commercial real estate financing is likely to be one of the most secure and affordable forms of funding available to your cannabis business.

Owning the building from which you operate your dispensary or production operation can provide tremendous security against greedy landlords or meddling local politicians. Even if your cannabusiness is forced out of that particular place, you’ll still be able to lease it to other businesses, and you’ll also lock in a stable monthly mortgage payment for many years. Some dispensary owners have had the misfortune of dealing with landlords who try to jack up rent to cash in or kick them out. A commercial real estate loan is an excellent defense against such occurrences.

Two other options to meet a cannabis business’ financing needs are term loans and business lines of credit. Both are available in amounts of up to $20 million when secured by assets, such as equipment or real estate, and both are offered in familiar forms. Either financing option is typically available with few strings attached, allowing you to deploy it for any reasonable business purpose.

A term loan is much the same as any other sort of financing offered with reasonable interest rates and monthly installment payments spread out over several years. For asset-rich cannabis businesses, a term loan can provide ways to extract necessary capital from property and equipment. These marijuana business loans are also available in unsecured form for smaller amounts, which tend to have better interest rates and longer repayment terms than working capital financing.

A business line of credit is much the same as the credit cards in your wallet, except such financing tends not to be usable to pay immediate bills or invoices. Rather, you draw on a certain amount, which is deposited in your bank account (have you found a state-chartered bank willing to work with you?) for immediate use. You’ll have to pay back any money you’ve drawn within a certain time frame, typically one year, but a line of credit can stay open and even increase in size over time as long as you stay current and pay back whatever’s due.

If you’ve done your research, set up your cannabis business to comply with relevant state and local — if not federal — laws, and have provable income streams, you could be eligible for substantial amounts of funding. We’ve come a long way from the “reefer madness” of earlier decades, but there’s still a long way to go. Pioneering cannabis entrepreneurs like you are critical to helping us get there. So, how can we help your cannabusiness today?