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In financial terms, to refer to a business as “financed” means that the business is at a point in its life cycle where it can qualify for some form of traditional financing from a traditional financial institution. For a startup, this is considered a significant milestone. For the legal drug industry, this is a big deal. In medicine, just getting the basic savings services most businesses can do is a mission. The debt? Forget it.
This begs the question: Are cannabis businesses financially viable? Yes, they can, yes. I work with many of the major banks and credit unions across the country that provide financing to plant related businesses and plant related products. Instead, peel that onion.
First let’s talk about the beginnings: In the new market, all these new licensees, or for that matter want licensees, are not financially – unfortunately. That’s not a cannabis issue though — that’s a trigger issue. However, it is very dangerous if you don’t have enough startup capital for your business, there is simply no business. Banks and credit unions are not sources of startup capital. In selected situations, there are programs that may help, such as various SBA programs, for example. However, these programs are not currently available in cannabis. With some hemp-based products, the USDA and other government programs may be available, but not as much for THC products. Again, it is important to note that this particular entrepreneur does not mean that the business is a drug business but a very common issue that all startups face.
Depending on your loan officer, you may have heard him refer to the three C’s or the four C’s, or different terms about the legs of the stool when talking about lending to your business. . Outside of the drug, the business can show a few years of good operating history (usually two or three years), it must be in a bankable and creditworthy position. go up. The drug industry, however, presents a unique challenge despite all of the above. Unfortunately, one of the methods of giving money — the most important pledge. In other words, there is nothing wrong. The most important asset of a drug business is its license, which cannot be held or you cannot complete a bond on it (in most states). Inventory, it’s good to be found, so it’s really only house property.
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Resources come up with another factor in the drug budget: costs. There are drug prices and then market prices. It’s not the same thing. In commercial areas, the difference is not so great. In the garden, there is always a lot of space. I have seen the difference between an indoor plant and an industrial use area in the same spacious area that is three times larger. The problem with this dynamic is that if you think about it from the lender’s point of view, their concern about collateral is their ability to use the value of the property to clear the loan. In other words, if the loan is collateral, what property will be received at foreclosure? This “go-to” value considers the worst-case scenario for the lender, which is a reason to be cautious when analyzing the loan.
These kinds of challenges are not unique to the drug industry. For example, areas of valuation are common to special use items. If we look at budgets for data centers, we can see that they are very strong compared to indoor plants. A data center is simply a large storage area with lots of cooling equipment. The lack of a “clean” bond isn’t unusual, and it’s one that other industries struggle with. Many businesses require licenses to handle the same issue in their credit reports. If you are going to find the right lender, you need to have the knowledge and experience to deal with these issues.
So, are cannabis businesses financially viable? Yes. But while banks and credit unions can — and have given money to the drug industry — most drug companies don’t really fit into a traditional writing box. It takes a little creative thinking and a lot of education for the industry before traditional FIs can handle the checks.
Of course, there’s the whole IP thing and a little thing called 280E, but that’s a topic for another article.
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