Securing Funding and Strategic Investing Within the Cannabis Industry

    By Serge Chistov, Chief Financial Partner,

    Every new industry experiences some obstacles at the outset, particularly when it comes to securing funding. Investors, whether venture capitalists or standard banks, can be weary when the industry involves product lines that aren’t universally embraced, or as in the case of marijuana, are illegal at the federal level.

    State by state regulatory hurdles for production, packaging and so on, is just one of the issues that can make it more difficult to fund a cannabis business, but there are ways that companies can grow, with fewer bumps in their road. Some may look towards websites like to see if they are able to secure the funding that they need.

    Typical hurdles for securing investment for cannabis businesses

    The cannabis industry is no different than any other business except for the fact that it is a specialty business. With that comes the need to look for funding among investors who have some knowledge or appreciation for the business. Businesses will also need to utilize software such as to help the business work smoothly and effectively within the industry.

    As to some of the hurdles mentioned above, the state by state difference in regulations surrounding the cannabis industry is one of the concerns that investors can have. Since cannabis is still illegal at the federal level, there can be an array of hurdles at a state and local level that makes opening a cannabis-based business trickier to work with.

    Lenders might also have some objection because their religious beliefs will prevent them from touching this sector. The morality question is a factor in other industries as well, including gambling, adult entertainment, and so on, but as you likely know, morality has not prevented those industries from growing exponentially over the last decades.

    Banks will work with cannabis money to some extent, but won’t invest

    Banks and credit unions may be more open to working with cannabis money, but investing isn’t an option. They let the industry pay to keep the money in the bank. Cannabis companies have access to check writing and bank reconciliations and cash/check deposits, but it’s unlikely financial institutions would invest or put their license at risk.

    There are limits to a bank’s willingness to work with income from a cannabis business as well. For example, they will try to exclude this money from your income statement. That income would not come into play with a decision to lend business money for something else. They will not use money coming as a result of the cannabis industry as justification in giving a customer a loan.

    Finding and vetting potential investors

    Any cannabis business that is searching for funding will need to have a very clear, well-articulated business plan. It is important to understand all of the same factors of opening any other business, including cash rate, regional build-out, the best/ worst scenario of sales and growth. Presenting all of this information is something that any investor would be looking for.

    From that point of view, a business in the cannabis industry is no different when it comes to getting funding. That said, it might be to your advantage to look for unique lending or investing groups that either currently specialize in the cannabis industry or are starting to open their books with a plan to ultimately specialize in cannabis.

    Funding has opened up to more players. There are more industry participants who have their own funding right now. There is also more interest in the sector, more participants, and more insiders of the industries that are willing to invest in the right idea. If you have a good business plan with the right technology, right idea, right people, right places and a general understanding of why consumers will pay money in whatever retail location for your product, then this proposition should not be any different than opening a pizzeria, for example.

    In terms of finding those investors to pitch to, one viable way is to attend investment conferences. Go and speak to people in the industry. Visit people at national expos and shows. The internet is also a good resource. Different cannabis capital groups are out there, but it’s a question of what we call “smiling and dialing.” You’ve got to put in the legwork to find the right investors. It is really not much different than if you wanted to open a chain of salons. You need to allocate and isolate people that historically have been investing in the industry. They already have an interest, so start the conversation, and you’ll be surprised that one conversation will usually bring a result that will take you to the next level.

    Opportunities to invest in the cannabis industry this year

    From the standpoint of the investment community, there is an opportunity to work with the data that is already out on the market. You can definitely see the trends and sales, which makes it easier to get an accurate picture of the local market. I believe that the brands are becoming a point of interest to some national investors. The advice is the same for investors looking for opportunities in the cannabis industry as any other: do your research. There are more information sources available than ever.

    Production and retail facilities are self-sufficient operations, producing steady cash flow and profits. An ability to consolidate a profitable operation and stay independent will create a pretty powerful stateside distribution, production, and retail environment.

    Technology will continue to be a beautiful thing to look into because, at one point or another, our belief is that cannabis will become part of our vitamin portfolio just like vitamin E, B, and A. We are going to be consuming cannabis as a part of our diet, as a part of our tribal engagement and as a part of our healing processes.

    Another aspect of the business is the consumer product innovation in packaging. Reducing the amount of plastic in the packaging is a positive step, and some brands are innovating plastics that become more earth-friendly, just like any other industry.

    There are plenty of opportunities to look at, so long as you remember that this is a rapid growth industry, at least for the time being. When clear federal legalization comes into play, the big guys will come in and run cannabis businesses in their existing facilities. For now, though, there is still a tremendous opportunity for investors to find niches and do well. And that, after all, is what investing is all about.Serge Chistov is a cannabis industry expert and Chief Financial Partner with Honest Marijuana Co. Honest Marijuana has been a leader in cannabis innovation since it’s inception with an organic approach to the growth, production and packaging of cannabis, the launch of the first-ever organic hemp wrapped machine rolled blunts, the invention of the now patented Nanobidiol Technology, and the first company to bring THC-O-Acetate technology and products to market.


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