Starting a cannabis business is exciting and nerve-wracking at the same time. While there may be huge potential for your business, procuring the funding to get it off the ground is not an easy endeavor because its federally-illegal status blocks most banks more than in the world of weed.
Fortunately, banks aren’t the only ones with pockets deep enough to fund new businesses. In fact, many private investors want to fund cannabis businesses thanks to the widespread appeal of this booming industry. Though federal restrictions and varying compliance issues may turn many investors off, those with a hunger for a high payoff and an eye for a solid company know not to ignore the potential benefits of investing in cannabis companies.
Benefits of Cannabis Company Investments
Whereas the average person starts seeing more pot leaves as marijuana becomes legal, investors see dollar signs. That’s because the appeal of cannabis is obvious; consumers are already in place, they just need businesses to meet their needs. As such, the potential return on investments is both quicker and higher than other, non-cannabis start-ups.
This is in part due to marijuana’s existing popularity but also due to the exponential growth opportunity top cannabis businesses face. Though most cannabis businesses will fail, investors have a keen sense for those with the most potential, focusing specifically on those who stand to expand the most.
Digital companies or those who can brand nationally (or internationally) are especially attractive, particularly if they have a firm understanding of their business model, growth potential, and pertinent compliance regulations. Some investment companies may even offer to help the business grow via mentorship and intensive business and investment courses.
Concerns Regarding Cannabis Business Investments
Just because there’s money to be made in the weed biz doesn’t mean it’s worth the risk for everyone. Because of cannabis’s federal status, investors cannot receive bankruptcy protection for their investments. As such, the risks of buying into a cannabis company (especially one with a foggy future) is a liability many investors are not willing to risk.
Furthermore, compliance issues change constantly and companies that cannot stay on top of them risk being shut down. Investors understand this and will, therefore, choose their opportunities based on a company’s knowledge of local compliance regulations and their ability to move with the flow of the ever-evolving cannabis industry.
How to Get Investors for Your Business
Thousands of cannabis businesses try to get off the ground every day. Most of them won’t succeed. If you want your company to be among the few who make it, you’ll likely need some funding to get you there.
Fortunately, there are things you can do to improve your chances of acquiring funding for your cannabis business. Most important: have a solid business plan written and ready to go (and edit it frequently as your company evolves). This will not only show investors that you’re serious about your business but will also help them understand exactly how their investment will be used.
Almost as important as having a good business plan is having good business partners. You and your buddy from college may get along great in the stoner circle and then butt heads around the conference table which could indicate a volatile business. If investors are going to choose your company, each member must serve a valuable purpose and have a team-oriented mindset.
Finally, remember that you, too, are interviewing potential investors. While some may only offer funds, others may include courses, mentorship, or other avenues through which to launch – and maintain – a successful business. Though your specific investment needs may vary, the bottom line is always the same: find an investor willing to work with you instead of one just wanting throwing money at you hoping for a return. This is a partnership, after all, and you’ll be committed once you accept an offer whether the terms are favorable or not.
As cannabis legalization sweeps the nation, many have considered the prospect of joining in on the “green rush” to help them nab their piece of the American Dream. While some prefer to buy in on stocks and hope for the best, others are taking a more active approach by launching their own cannabis companies. And while there are certainly some risks involved in the cannabis market, there is also a lot of potential for businesses and investors alike.
David Kani is a California based trial lawyer, author, and social commentator. Connect with David at [hidden email] or to book David to speak at your event, please contact [hidden email].