If you run a cannabis business, you probably already know how difficult it is to navigate legal regulations, especially with regard to licenses and permits, purchasing real estate, and of course, finding funding.
Unfortunately, small business loans are extremely difficult to find for most cannabis business owners. Because cannabis remains a Schedule I controlled substance on a federal level—however legal it might be in your state—financial institutions aren’t typically able to handle any capital that’s related to cannabis.
However, as activist groups and politicians have pushed for legislation on this issue, avenues for cannabis business funding have slowly become more available. Therefore, although you won’t be able to get cannabis business loans from major banks or similar financial institutions, you may find some alternative, private lenders and online marketplaces that can offer financing solutions.
With this in mind, to help you through the search process, we’ve compiled this guide.
Here, we’ll break down your best options for cannabis business loans, as well as discuss some top sources for alternative financing. Plus, we’ll also explore the state of funding in the cannabis industry and what business owners can expect to see in the future.
The Best Cannabis Business Funding Options
Although cannabis business loans are generally more difficult to find, there are more and more lenders emerging who have found ways to work with and fund cannabis businesses. However, because there are so many legal regulations and grey area within this space, you’ll want to take extra care when investigating and comparing these business financing solutions—especially since not many of them provide thorough information online. You’ll want to read lender reviews, ask questions, and turn away any company that you get a bad feeling about.
With this in mind, let’s take a look at some of the best options for funding cannabusinesses.
GUD Capital is a business capital marketplace that connects business owners looking for financing with direct lenders.
According to their website, GUD Capital can work with your cannabis business to find private loans, real estate loans, equipment leasing, and cash advances. GUD can work with your business to find you funding ranging from $5,000 to $20 million, with interest rates falling anywhere from 8% to 25%.
If you’re interested in working with GUD Capital for your cannabusiness, you can call to speak to one of their representatives or submit a basic online application.
Diamond Business Loans is a financing company based in California that works with cannabis businesses, both startups and existing businesses.
Diamond Business Loans offers three main funding programs for cannabis businesses—an unsecured capital program, a commercial real estate purchase program, and an equipment program.
With the unsecured capital program, you can receive up to $150,000, but must have a 680 personal credit score or higher to qualify. The commercial real estate program offers up to $15 million in funding with a 30% down payment required. Finally, the equipment program is available on a case-by-case basis.
Like GUD Capital, you can call Diamond Business Loans directly for more information, or submit a basic inquiry on their website.
Next, Dynamic Alternative Finance is a financing company designed specifically to accommodate cannabusinesses.
Dynamic Alternative Finance offers real estate loans, working capital loans, equipment leases, and bridge loans.
With their working capital loan program, for example, you can qualify for a revolving line of credit or a term loan in amounts of $250,000 and higher. If you’re looking for $200,000 and under, however, you can apply online and receive pre-qualification within 48 hours.
You’ll find that Dynamic Alternative Finance has an application process similar to many other alternative lenders—you can set up an initial phone call with a loan specialist, submit your documentation, talk to potential lenders about your options, submit additional documentation, and finally, receive funding for your cannabis business.
GoKapital offers cannabis business loans in the form of merchant cash advances.
With GoKapital, you can receive a cash advance ranging from $50,000 to $5 million, as long as you meet their minimum qualifications: four months in business, personal credit score over 500, and annual sales over $150,000.
In addition to their general financing options, alternative lender Small Business Funding also offers solutions for cannabis business loans.
Although Small Business Funding typically offers term loans, SBA loans, equipment financing, and lines of credit, it seems they currently offer merchant cash advances for cannabusinesses.
This alternative lender specializes in business loans for marijuana dispensaries. Through a network of lenders, United Capital Source offers various types of cannabis business funding, from working capital loans and term loans to revenue-based business loans.
Loan proceeds can be used for a variety of business expenses, including buying inventory, opening a new location, advertising, staffing, and more.
You can apply for a cannabis business loan through their online application and can then chat with one of their loan experts to go over the requirements and your funding options. On their website, United Capital Source boasts an approval time of just 24 hours and funding within just a few business days.
As you can see, despite these lenders offering some forms of financing for cannabis businesses, you won’t have access to the variety of options available to most small business owners. Additionally, many lenders only provide merchant cash advances, which are generally the most expensive form of business financing.
Therefore, one alternative cannabusiness funding source you might turn to is a venture capital (VC) firm.
Many venture capital firms have stepped into the cannabis industry. Seeking cannabis business funding through VC capital could be a solid option for some marijuana businesses that don’t want to take on debt. It’s important to note, though: Accepting business funding from a VC firm will mean that you’re selling part of your cannabis business and diluting your ownership percentage, known as equity financing.
Below, we’ll explore some VC options for cannabis business funding, as well as another alternative method: crowdfunding.
Cannabis business funding from the venture capital firm Casa Verde has spurred premier weed brands to great heights.
It’s important to keep in mind, however, that Casa Verde invests in ancillary cannabis businesses—this means they’ll invest in platforms, lab tech, and media companies that deal with cannabis-related issues, but they don’t invest in businesses whose sole purpose is to sell cannabis.
Another cannabis business funding source to look into is Tuatara Capital. Tuatara Capital, unlike Casa Verde, is interested in investing in the plant itself—one of their main sectors for investing is cultivation. They also invest cannabis business funding into sectors like consumer and retail, industrial services, technology, processing, and research and testing.
Therefore, if you’re hoping to fund a retail or cultivation cannabis business, then Tuatara Capital might be the best business funding option for you.
Cannabis business funding is also available through Privateer Holdings. This cannabis venture capital firm was founded in 2010 in Seattle in efforts “to end cannabis prohibition and the social harms it causes.”
Like Tuatara Capital, Privateer Holdings invests in cannabis businesses that cultivate and distribute cannabis. Edible cannabis brands like The Goodship and processing and distribution brands like High Park Company make up Privateer Holdings’ portfolio.
For more VC cannabis business funding options, New Cannabis Ventures has a list of VCs to consider.
Crowdfunding has recently arisen as a popular option for funding startups. The two most well-known platforms are Indiegogo and Kickstarter. Indiegogo, for one, has approved some cannabis companies to raise funds on their platform. Additionally, StartEngine, a lesser-known platform, has also approved weed startups. Finally, there are a couple of marijuana-specific crowdfunding platforms, including CannaFundr and Fundanna.
Beyond business loans, cannabis businesses have difficulty obtaining other financing products as well, including the ones needed to run your business on a day-to-day basis. However, with the weed industry’s rise in popularity comes more businesses that specialize in cannabusiness.
Some of the products they offer include point of sale systems and debit cards so that your customers can pay you more easily. Let’s take a closer look at how these financing solutions can help your business.
Since most marijuana businesses transact only in cash, this can present a pain point for customers who don’t typically have cash on hand. To help solve this issue, there is a special debit system, available through CanPay, which allows businesses to accept debit payments from consumers who also use the platform.
Because CanPay is separate from the banking system, debit transactions are allowed. Be aware, though, that because CanPay isn’t regulated by the federal government, there are no guarantees about the security of your money. Still, using a debit system might prove to be more secure than handling cash.
If you’re in the market for a POS system to manage and accept payments at your cannabis business, you have a few special options. The main advantage of using cannabis-specific services is that they can help you stay compliant since they’re built with the specific legalities of the industry in mind.
First look into Green Bits, which helps you manage all aspects of the sales process. This platform includes state law integration so you can be sure you’re staying compliant, integration with other apps, and capabilities that let you easily manage your customer base.
For growers, distributors, and processors, LeafLogix can help you manage your day-to-day finances. This platform allows businesses to manage all points of the process, from cultivation to distribution to ecommerce to point of sale. No matter which part of the supply chain you handle, LeafLogix probably has the capabilities to help you manage and track your daily operations.
Although we briefly explained the problem with cannabis business loans above, it’s worth taking a deeper look at this issue.
At the end of the day, cannabis business loans are so difficult to access for one main reason: Even though cannabis is legal on the state level in many places throughout the U.S., on the federal level it’s still technically illegal.
As a result, federal banking regulations surrounding cannabis businesses consider handling all cannabis-adjacent capital as money. As of September 2018, only 486 depository institutions—banks and credit unions— were actively working with cannabis businesses in the U.S.
However, within states that have legalized medical and adult-use recreational cannabis, local financial institutions are certainly getting more creative then large, national banks are. There are tales of Colorado-based credit unions finding legal loopholes to allow weed businesses to bank with them.
Unfortunately, cannabis business loans currently fall into a mostly gray and complicated area, making it difficult for business owners to find financial solutions.
This being said, although more and more local banks are finding ways to provide financial services—like checking and savings accounts—to cannabis businesses, cannabis business loans are still pretty hard to find.
So, if cannabis businesses can’t find funding, what are small business owners to do?
Ultimately, the fact that most cannabis business funding comes from venture capital is far from ideal—venture capital firms, even ones in progressive industries like the cannabusiness, are notoriously inaccessible for most businesses—especially for female founders and minority owners.
This being said, a few local government entities are attempting to make cannabis entrepreneurship more accessible to communities that have historically been disproportionately disciplined for marijuana crimes before legalization.
Oakland, California, for example, has set aside half of its cannabis business permits for demographics that have been unfairly targeted in the past. This program is available exclusively for Oakland residents who make up to 80% of Oakland’s median income ($53,000) and have either had a cannabis conviction in Oakland or have lived for 10 of the last 20 years in a community that experienced disproportionate cannabis law enforcement.
Perhaps even more significantly, Oakland has also has set aside $3.4 million in interest-free cannabis business loans for these same communities. This is just one of many examples of local government and law enforcement taking steps towards making sure that the burgeoning cannabis industry isn’t just benefitting the few who can access venture capital.
Luckily, in addition to the efforts by local governments, regulations surrounding cannabis business loans are shifting as fast as the cannabis industry is growing. As of December 2019, there is legislation that has passed through the House of Representatives that would ensure that financial institutions could legally participate in the cannabis industry, called the “SAFE Banking Act.”
As a result of this legislation, entrepreneurs would be able to access cannabis business loans for startup funding, cash flow management, and one-off investments that running a cannabis business often necessitates. Plus, they would be able to avoid the downsides of venture capital—like ownership dilution and biased gatekeepers.
If you’re wondering why cannabis businesses have such problems finding funding, but hemp businesses have access to more options, there’s a reason for that.
Since the 2018 Farm Bill, signed into law on December 20, 2018, hemp is no longer a Schedule I controlled substance, but is still under the regulation of the FDA. This change means that hemp-based products are no longer monitored by the federal government, but instead by the FDA, just as other foods and cosmetic products are.
In turn, this means that finding working capital and bank accounts will be much easier for hemp businesses. In addition, interstate commerce of hemp products is now legal, as well.
Plus, all of these changes apply to CBD businesses. As long as the THC concentration of a product is no more than 0.3%, the product qualifies as a now-legal hemp or CBD product.
At the end of the day, with all of the legal regulations, reports, and legislation involved it can be difficult to understand the problem with cannabis business loans and why options are so limited for cannabis businesses.
This being said, despite the progress certain local financial institutions have had—as well as the changes made for hemp and CBD businesses—there are currently few opportunities to access cannabis business funding. Although there are some peer-to-peer lenders and marketplace platforms, as well as venture capital firms, that can help cannabusinesses access financial solutions, there are nowhere near the variety of affordable, transparent options that most business owners have.
Nevertheless, the surrounding legal intricacies around cannabis business loans are constantly shifting. If you’re an active or aspiring marijuana business owner, things might start looking up if the federal government begins to shift its stance on legalizing handling cannabis-related capital.
Meredith Wood is the founding editor of the Fundera Ledger and a GM at NerdWallet.
Meredith launched the Fundera Ledger in 2014. She has specialized in financial advice for small business owners for almost a decade. Meredith is frequently sought out for her expertise in small business lending and financial management.