You are the owner or future entrepreneur of a cannabis business? You need to know everything about the financing possibilities that banks currently provide for this type of business?
If so, you should read this article very carefully, since in it we will explain in detail the investment opportunities in the marijuana business, as well as all the aspects that any entrepreneur in this sector will have to take very much into account in order to be successful.
You want to learn all about setting up a marijuana business with the help of banks? Take note!
Types of financing for a marijuana business
Any entrepreneur who is starting to lay the foundations of a business, the first thing he needs to be able to launch his brand to the market and make himself known is a good initial investment: a bank loan.
While, although banks are usually very cooperative with young people who want to start, when the business to be opened revolves around marijuana things get complicated; it has no good reputation, and despite being legal its retail and controlled sale, There are still many banks that don’t want anything to do with this type of business.
However it is not all lost, as in recent years there has been an increase in financial opportunities for Marijuana businesses; not too many and with very strict conditions, but at least it is a step forward that will provide hope for all future entrepreneurs in this sector. Currently there are a number of private investors who have replaced the banks as major lenders and offer very comprehensive support for the marijuana business.
Among the various types of aid they offer, the following stand out: the possibility of receiving benefits from wealthy individual investors (angel investors), access to venture capital loans and private equity funds, among others; certainly much more favorable conditions than those offered by most banks.
Prominent among these private investors is the Platinum Financial Center based in Albuquerque, New Mexico, which specializes in lending to high-risk businesses. However, not everyone can access one of their loans, as they must first meet a number of requirements:
- Have a commercial bank account
- Be incorporated
- Have monthly gross sales of at least $10,000
- Have a credit score of at least $500
- Have been active for more than six months in the sale of marijuana
Another big investor is Mentor Capital Inc., a public company whose main function is to finance businesses that produce marijuana for medicinal purposes. Of course, the options for financing a marijuana business are limited, but compared to years ago it is a lot.
The hope of this sector is that with the passage of the years and the proper modification of the laws on the management of marijuana, their conditions to prosper as entrepreneurs of the sector will multiply and be the same as that of any other entrepreneur.
Why Banks Avoid Funding Marijuana Companies
The main reason why banks don’t want to finance marijuana companies is because of the current FDIC regulation ( Federal Insurance Corporation Deposit), which states that the FDIC does not have to insure banks that they take existential risks; among them, financing a company that is violating a federal law. As long as the law remains clear on the sale of marijuana, the banks will be left unprotected and companies therefore have much less possibility to finance themselves.
For the time being, banks seek to protect themselves and avoid taking on any criminal liability that harms them; with the exception of a few that allow financing companies that show no handle or directly touch the plant ( indoor crop).
However, until the law is uniform and clear in most American states, many banks fear that their economic aid will be interpreted as an illegal money-laundering operation; a very serious crime in most states and that could imply the absolute routine of the entity.
Hire the services of a lawyer expert in the field
You want to start your cannabis business with all the guarantees of success and comply with all the laws of the state in which you reside? So what you need is a lawyer, and a very good one who has experience
working on cases similar to yours.
Having a lawyer will not ensure that a bank will give you a loan, but it will increase your chances; and it will significantly improve your image as an entrepreneur before borrowers and the law. While, apart from hiring a good lawyer, the best thing we can do is to be patient, since the laws that regulate the use and handling of cannabis do not stop changing; it is a matter of time before all marijuana businesses are legal.
If there is one sure thing in a business, it is that despite not getting any line of credit from banks, employees and collaborators need to collect their money. There are times when an entrepreneur decides to open a cannabis business without financial assistance of any kind, which poses an added risk but will not prevent him from doing his business.
Even so, any business needs to be able to have an account in which to deposit revenues and some way to conduct its daily transactions. For this purpose, it is also possible to open a bank account in which the purpose of the economic activity is not specified or to contract the services of a third party who acquires the account in his name.
In any case, if you are thinking about opening your own cannabis business and you are not clear where to start, through this small guide of tips you can get a rough idea of what you need in order to get there with all the guarantees of success.
Good luck and don’t give up!