As the wave of weed legalization has reached many states, including the USA and the UK, many startups wishing to deal with the cannabis market are popping up in the business landscape every month. The interest in cannabis products is reasonable, as it promises a high ROI in the context of elevated user interest in CBD-infused items and their varied therapeutic benefits.
However, the intricacies of the CBD business differ profoundly from other economic sectors, so both startups and investors need to do their due diligence before starting a CBD venture. This article walks you through the ins and outs of cannabis business financing to help you avoid the common blunders and risks investors encounter in this niche.
Step #1 Learn More About CBD
The first point that every entrepreneur planning to venture into the CBD business needs to address is inside-out knowledge of the industry. You can learn more about CBD manufacturing and industrial processes at askgrowers.com/cbd/flower or consult professional agencies to avoid confusion. Besides, it’s critical to understand what cannabidiol generally is and how it is extracted from the hemp plant, how it is stored, into which products it can be infused, etc. These fundamentals will give you a clearer picture of what equipment you will need for your business, what storage capacities are required, and what product range you can manufacture under one label. This knowledge will become a substantial basis for building the business plan and creating a company with well-formulated, transparent strategies.
Step #2 Study the Laws
Next, it comes down to the legislation in your jurisdiction. Yes, cannabidiol is non-psychoactive, and yes, it is allowed in most US states (and in many other countries). However, the legal landscape surrounding cannabis is still overly complex, and you need to be crystal clear about what you can and can’t do as a company. The fines for violations are huge; your startup may never survive through them. So, it’s better to organize everything well in advance – a professional legal firm can help you with this aspect, as they know all the laws and can consult you on the risks, hazards, and legalized activities.
Step #3 Determine the Type of Loan You Need
As the cannabis business sector grows and continues expanding, the variety of loans you can get for its financing also increases. Various credit options are available for businesses wishing to back specific activities or aspects of their operations, such as:
- Equipment. If you want to execute the entire production process yourself, you will definitely need modern equipment for CBD extraction from hemp plants, hemp processing, packaging of ingredients, product manufacturing, and storage. These pieces of equipment may be expensive for a business that only starts out and has no regular revenue. Therefore, you can get a loan for equipment purchase, in which that equipment will serve as collateral. The bank thus has a safe deal with the CBD entrepreneurs: if they can’t repay the loan, the bank can get the equipment back.
- Cash support. This is a more conventional form of a loan that presupposes releasing a particular sum of cash to the CBD business. CBD companies can use that money at their discretion to finance various aspects of their business activities. The installments of paying the loan back include the interest rate with which the loan was provided.
- Line of credit. This type of loan looks like a usual business credit card with which you can get some credit funds for a couple of weeks or months and pay them back by the estimated date.
- Term loans. Those who plan a large-scale business expansion or need a longer-term financing plan can apply for term loans. This form of financing usually involves getting a loan for a large sum of money that needs to be repaid in several years. This way, the borrower has some time to set up all operations and start getting stable profits from their investments.
Step #4 Look for Funding Programs or Funds
You can apply for a loan if you have no personal money for the CBD startup project. Traditional banks are still suspicious of cannabis-related businesses, so you can hardly get a traditional loan from a bank that serves you in all routine financial matters. However, the CBD community is expanding quickly, with many rich people and funds enthusiastic about the financial potential of this quickly growing market. Thus, you can search for the funds and startup support programs specifically suited for CBD entrepreneurs to raise the finance needed for your innovative business idea. Here are some examples of such programs in the USA:
- Cannabis Startup Loans – a US-based venture fund specializing in cannabis business financing. Aspiring businesspeople can get up to $200,000 of unsecured capital for their cannabis startups. The company has a 700+ FICO score and provides favorable loan conditions for all kinds of businesses, ranging from dispensaries to processors to equipment financing.
- FundCanna – a CBD business financing fund that helps American entrepreneurs enjoy a smooth head start in their CBD business. The company gives short-term and long-term loans, cash advances, and equipment purchase financing; beneficial interest rates are coupled with a quick response time for loan inquiries, just under 24 hours.
- CannaBusiness – this fund provides loans to CBD startups ranging from $50,000 to $15 million, with an average loan approval time of 24-48 hours.
Visit the websites of these loan providers, study their terms, and apply for support if you find any of them more suitable for your business goals. However, before applying, you need to complete the next step – the formulation of a clear, impressive business plan. No bank or private fund will finance your business if they don’t see a unique value and ROI. So, approach the business plan seriously and make sure it includes all key points that can convince investors.
Step #5 Make a Business Plan
There’s a broad CBD market with many well-established businesses in the USA, but the niche is still far from overcrowded. Thus, you can easily attract consumers to your new brand if you give them unique value for their money. That’s what you should cover in a business plan and strategy for your business development:
- Describe your business and business model;
- Explain what products and services you will provide;
- Share a marketing plan (expenditures, planned ROI);
- Mention the equipment you need to buy;
- Analyze your competitors;
- Present your SWOT analysis;
- Share the details of operational management and organization;
- Give a concise summary of startup expenses and capitalization.
As you can see, getting vital financial support for your CBD startup is not that hard. Obviously, the process can get too challenging with the traditional bank, but many alternative lenders specialize in the CBD business, and they will surely listen to you. So, make an appealing business plan, develop a strategy, and go on to launch a new winning brand in the market.
The material was prepared by Tia Moskalenko, a passionate cannabis industry advocate and a brand ambassador for many cannabis startups. Tia is a full-time blogger at AskGrowers to share exciting news from the cannabis business sector and show its potential for entrepreneurs and consumers.