A traditional business loan typically requires weeks (sometimes even months) of processing time and a laundry list of documentation to verify the business’ income, credit history, and future plans for the use of new funding. In fact, it is quite common for the traditional, behemoth banks to require a business in search of financing to pledge collateral as a condition of the loan approval.
Fortunately,cannabis business loans are different. This type of business financing offers cannabis businesses an opportunity to secure funds that can be used to finance either a new business or, a planned expansion of an existing business. Read on to learn how to take advantage of this creative financial instrument that might just meet your cannabis business’ needs.
What are Cannabis Business Loans?
A cannabis business loan is somewhat unique to the lending world in that they deviate from the strict, rigid underwriting guidelines that once demarcated the business lending market. A cannabis business loan offers a flexible lending option that works well in this industry that has yet to define its role in society or, in the general economy.
And, like many other types of business loans, cannabis business loans can be used for a variety of business purposes and objectives. However, unlike other business loans, cannabis business loans are offered without lending restrictions regarding the use of money.
Before signing on the dotted line for one of the available cannabis business loans, it is critical that business owners and entrepreneurs understand the workings of a cannabis business loan. Consider the following –
- After approval, the borrower receives a lump sum payment equal to the loan’s balance, minus loan fees, if any.
- Monthly payments are remitted according to a mutually agreed upon repayment schedule.
- Financing can be used for any purpose.
- Lenient lending guidelines allow for a more likely approval.
- Quick processing times.
- No collateral requirement.
- No business income verification check required for startups (established business may have to verify business income).
- Business owners/responsible parties must submit the paperwork that legally identifies the individual and the type of business entity being financing (i.e. corporation, LLC, or partnership, etc.).
What Businesses Benefit from Cannabis Business Loans?
Cannabis business loans act as working capital — the financing required to build or expand a business organization. Therefore, nearly all businesses involved in the cannabis industry could benefit from obtaining this business loan that offers lenient lending guidelines and quick accessibility to cash.
As the cannabis industry struggles to dismiss the pejorative reputation it has faced for too long, the business of cannabis continues to evolve and grow. Advocates supporting the benefits of cannabis’ medicinal and recreational properties have made great strides in the past two decades, or so.
The cannabis industry is generally divided into three categories –
- Cannabis Production — The Growers.
- Cannabis Dispensaries — The Sellers.
- Cannabis Ancillary Businesses.
Cannabis Production — The Growers
Cannabis producers are tasked with the responsibility of cultivating cannabis plants within the revised legal boundaries set forth by the new state laws. Entrepreneurs interested in this area of the cannabis industry should remember that cannabis growers should possess horticulture and agricultural skills.
Some areas of cannabis production are quite scientific as the production processes require –
- The Breeding of Cannabis Seeds.
- The Creation of Cannabis Clones.
- The Planting and Harvesting of the Cannabis Plant and Flowers.
Cannabis Dispensaries — The Sellers
The ultimate goal of the cannabis production sector of the cannabis business cycle is to cultivate and prepare a product for sale to licensed cannabis dispensaries and handlers.
These include –
A Cannabis Dispensary.– a cannabis dispensary is a highly regulated retail establishment where cannabis is sold to medical marijuana patients (in states where cannabis is only approved for medicinal purposes) or, to adults in those states where the law allows for recreational use. Note: A cannabis dispensary loan is only available in one of the 33 states (5/2019) that have passed new legislation.
A Cannabis Edible Business.– cannabis edible businesses transform cannabis concentrates and extracts into delicious treats. Many cannabis users prefer not to (or cannot) smoke or vape marijuana. As a result, cannabis edibles are now available in your morning coffee, or as a –
- Cookies, among many other ingenious edibles.
The reality is when it comes to cannabis edibles; the sky’s the limit. Some edible companies are now exploring healthier edible options like gluten-free and/or organic options.
Ancillary Businesses in the Cannabis Industry
Ancillary businesses also benefit from obtaining a cannabis business loan. These ‘cottage industry-like’ businesses spring-forth to support the cannabis industry. Here are a few examples of potentially lucrative ancillary businesses.
Accessory manufacturers and retailers produce equipment that is used by legal cannabis users. These items include filters, rolling papers, pipes, and grinders, among others. The accessory part of the cannabis industry can operate without the bureaucratic challenges dispensaries must face.
Cannabis Public Relations
The manner in which a business is promoted is very often critical to the business’ success. Businesses that define the cannabis industry must also proactively educate the public regarding the industry’s erroneous stigma.
Cannabis Security Services
Recent changes to cannabis laws happened at a state level. To date (5/2019), the federal government has essentially remained silent regarding this issue. As a result of this vague federal legal status, banks have chosen to avoid providing financial services to cannabis businesses. Because of this dilemma, most cannabis businesses operate on a cash-only basis; hence, the need for extra security.
How to Get Approved for Cannabis Business Loans?
A cannabis business loan is a smart financing tool for above-average risky lending situations. When first offered, cannabis business loans were only available from a small niche of innovative lenders. However, the cannabis-financing sector has grown, with more traditional lenders offering these loans each day.
Cannabis entrepreneurs and business owners should expect to submit the following documentation when applying for a cannabis business loan –
- Business Licenses.
- Personal Credit History for the applicant. It is noted that one’s personal credit profile is typically the most influential underwriting guideline. While any amount of business credit will be helpful, it is not a requirement for approval. The minimum credit score is 680 – 700.
- A minimum business history of 6 months.
- Identifying legal paperwork for the business and business owner.
- A short written statement from the borrower regarding the anticipated use of funds.
States Where Cannabis Dispensaries Can Operate Legally
The following lists detail the states in which cannabis is legal for either medical or recreational use. Remember though, many states have pending legislation, which means these lists are subject to change.
States where medical marijuana is broadly legalized.
- New York
- New Hampshire
- Rhode Island
- North Dakota
- New Mexico
- West Virginia
- New Jersey
States where marijuana is legalized for recreational use.
- Washington D.C.
Welcome to the Green-Rush! The cannabis industry is poised to experience huge market growth. Certain cannabis statistical pundits advise that it is likely impossible to predict just how large (or fast) this industry will grow.
She has spent the last decade assisting entrepreneurs with starting new businesses, obtaining startup and working capital and growing their customer base.
She enjoys writing about her experiences as an entrepreneur and using data and information from reliable sources to back up what she writes about. Through her writing she aims to educate other entrepreneurs on how to obtain capital and build successful businesses doing what they love.