Smart Approaches to Cannabis Funding

Smart Approaches to Cannabis Funding in 2024


The precarious state of cannabis being legal in some states, but illegal at the federal level doesn’t mean that financing isn’t available for legally licensed cannabis companies. 

As of this writing, financing is available for real estate, equipment and even operational expenditures. Plus, contrary to popular belief there are some traditional sources in addition to private capital lenders that will fund your cannabis company.

Below we’ll reveal insider information on the sources of debt financing, how to know if you are qualified and the types of programs that are available. Let’s dive in to smart approaches for cannabis funding in 2024.


Can My Cannabis Company Get Approved for Financing?

First things first, no matter what type of debt lending source you approach for cannabis financing it is critical to understand what makes some companies fundable while others are not.

One of the disconnects in the cannabis industry is that operators believe that by the very nature of being in cannabis lenders will throw money at any cannabis financing request that arrives on their desk.

In reality, the opposite is true. Cannabis lenders have a flood of applicants walking through their door every day and they are trying to figure out the safest place to park their money. 

The secret to getting your cannabis company financed is to make the case you are a safer place than the other applicants walking through their door. How do you accomplish that? With the three pillars of fundability.


The Three Pillars of Fundability

Cannabis business owners are always passionate and eager to tell the story of their company. Although important, it is not the place that cannabis lenders want to start when reviewing an inquiry. The first conversation they want to have is meant to soft qualify an applicant before diving deeper into the details. 

That conversation is…

  • How is the company going to pay for this loan?
  • Who is going to pay for this loan until or unless the company ever can?
  • If a collateralized loan, what are you offering to make us whole if the company or the personal/cross corporation guarantors do not pay this loan?


If you have all three of these pillars of financeability you can open most doors. 

If you have two pillars you can open many doors. 

If you only have one, it better be incredibly compelling. Like you could write a check for this loan and be financially solvent but prefer to finance. Or your building is worth four million dollars and you want to pull out a couple hundred thousand.

Two strong pillars are the general rule of thumb to pass this test and move on to the next stage with a cannabis lender.

Now that we’ve covered the basics of what makes a cannabis company fundable, let’s dive into who is financing cannabis companies.


Types of Cannabis Lenders Providing Cannabis Business Loans


Banks & Credit Union Cannabis Lending

Believe it or not, there are some banks and credit unions that lend into the cannabis space. They tend to offer the best rates and longest repayment terms but it is important to note that they are very risk averse. They are truly looking for the safest place to ‘park’ their money.

In order to qualify, you’ll want to be strong in all three pillars we reviewed above. In addition, expect a lower loan to value on real estate or equipment and collateral will be required to back any line of credit. Real estate will need to be in a major market or immediately adjacent and equipment will need to be durable with a long life, lasting value and robust secondary market to resell it if necessary.


Private Money Cannabis Lenders

The next and largest bucket of cannabis lenders would be private money. This includes family office funds, private investment funds and many other sources that offer financing for cannabis companies.

Private money lenders are a little less risk averse and generally offer real estate, equipment and unsecured capital financing for the cannabis industry.

Loan to value offers are a bit higher, location requirements aren’t quite as stringent and they will fund cannabis companies with two strong pillars to offer.

Rates and terms vary wildly in this segment depending on the amount of risk they associate with your cannabis company. Ultimately, the market prices the opportunity and that is important to remember that they dictate the terms.


Hard Money Cannabis Lenders

For those in the higher risk pool Hard Money cannabis financing may be your only option. As the name indicates, they are more risk tolerant than traditional or private money lenders.

Hard money cannabis lenders may lend only on the value of the real estate, finance higher risk equipment types and often provide revenue based working capital loans to finance business operations. 

Rates will be the highest and terms will be the shortest with hard money cannabis loans. Ultimately, the opportunity cost will need to outweigh the cost of capital for hard money loans to make sense. But if this is all you might qualify for it may well be worth it to start or expand your cannabis business. 


Additional Lenders for Cannabis Real Estate

When it comes to financing for cannabis real estate there are other players aside from Credit Unions, Banks and Private Funds. These may include real estate management companies, real estate development companies, real estate investors and other non-traditional cannabis real estate financing companies.


Management Companies

Their goal in life is to be a landlord. Management companies take on 6-8 projects per year and may purchase, construct or renovate real estate for your cannabis company. They then contract with cannabis clients on a temporary or permanent sale leaseback.


Development Companies

Similar to management companies, development companies take on 6-8 projects per year. Unlike the former, they tend to have their own investors and they will be the developer of record on the construction or renovation projects. They also have an offtake agreement with the client once the project is complete.


Real Estate Investors

This segment of lenders are generally cannabis agnostic. However, for the right building in the right location at the right loan to value they may make an offer to finance your cannabis real estate.


Now you know the sources of cannabis funding and what you need to get approved. Reach out and contact us to review your project and learn smart approaches to cannabis funding in 2024!

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