The cannabis industry has for the last 3 years been one of the fastest growing industries in the United States, and the entire world. It’s hard to get an exact number because every region uses slightly different metrics, but at a base level, the global weed market has a current estimated value of over $21 billion and is projected to reach over $90 billion in the next 5 years.
In the face of all this growth, there is still a glaring shortage of economic options to help businesses expand and meet their full potentials, especially those smaller companies that don’t have a lot starting capital. Due to strict federal regulations in nearly every country on earth, most financial institutions are unwilling to work canna-business owners, despite the unmatched potential of these operations.
Financing obstacles and why it all matters
A successful cannabis business can be wildly profitable, but operation costs are insanely high, and again, most businesses are unable to obtain loans via any traditional channels. Because it’s still federally prohibited, banks are not even willing to provide so much as a checking account to canna-business license holders, so you can imagine how challenging it is to try and get financing like loans or credit cards: nearly impossible.
Getting money from private investors may seem like a more promising option but can be similarly frustrating. Equity or stock funds are also severely restricted – because for various reasons be it legal, social, situational, or a combination of the three, most investors tend to shy away from marijuana. Those who do consider it, often face pushback because of the plant’s illegal status.
Even at peak times to invest, and even for low-risk and ancillary businesses, the fact that they are working in cannabis means these business owners will pay upwards of 25% APR for loans, compared to equally risky non-cannabis businesses who would pay roughly 6-7% for their own financing.
The ability to secure capital is a major stepping-stone for businesses of all ages and sizes, but especially smaller operators and startups who jump into the game with incredible products but very little initial funding. Unfortunately, most financial institutions won’t work with start-ups anyway because they have no track record of sales or receivables. One of those annoying catch 22’s, like when you’re fresh out of college but can’t find a job because no one will hire a person without experience.
Published: November 11, 2021
Founder & Interim Editor of L.A. Cannabis News