Funding Your Business in the Medical Marijuana Industry

Matthew Gillman

Updated: October 3, 2018
Medical Marijuana Funding
According to Statistics, the medical marijuana industry generated approximately 3.2 billion dollars in the United States in 2017. If you’re in the medical marijuana industry already, or thinking of investing in it, you can imagine what the future of the industry will look like.

The time for investment is now. Thousands of people have already realized this and put their money into the medical marijuana industry and are already reaping the rewards.

What’s holding you back?

If you’re like many others, adequate funding is probably the number one reason why.

It can be hard for regular businesses to get funding, but it’s even harder for businesses in the medical marijuana industry. Because the industry is still new and considered high-risk, loans for medical marijuana growers and dispensaries come with much higher interest rates. This might be what’s standing between you and a successful business.

Here’s what you should know about investing in the medical marijuana industry – and how you can go about funding your investment.

Collateral is different for businesses in the medical marijuana industry

Collateral is offered to the loan provider as insurance, should the lender be unable to pay the loan back in time. For a medical marijuana business, this works a little differently – because you can’t offer up grow or cultivation equipment as collateral.

This means you have to offer something else as collateral. If you don’t have anything to offer, as is the case with many new and emerging businesses, there are loans that can be perfect to help get this particular kind of business off the ground.

Medical marijuana businesses are taxed differently

Medical marijuana businesses, whether growers or dispensaries, are taxed differently – and often higher – than other businesses. But this doesn’t necessarily mean that loans will be bad for your business when used right.

Many types of business loans (including working capital and equipment loans) and other business costs can be tax deductible. Speak to a professional tax practitioner to find out what you can and cannot deduct.

Politics factor in

Some loan providers have begun to clamp down on loan regulations for medical marijuana businesses, especially start-ups. This makes it much harder for medical marijuana businesses to get capital – but it’s not impossible.

Where business owners might have traditionally opted for a normal business loan, there’s now more merit for medical marijuana businesses to approach other types of loans instead. Working capital loans are one type that work easier, better, and faster for the emerging business, especially in this industry.

Equipment Loan for Medical Marijuana Industry

Equipment loans offer a great alternative for those in the medical marijuana industry because they don’t come with nearly as much risk for the borrower. Equipment loans are considered short-term loans, and often come with a lower interest rate than comparative business loans. Equipment loans are also easier to acquire for small businesses. You can even get approved for an equipment loan if you have bad credit.

Equipment loans are specifically for your businesses’ equipment. This is ideal for the medical marijuana industry newcomer who is just setting up because there can be a lot of equipment involved.

 Working Capital Loans

Working capital loans cover the operating costs of your business. This can include everything from wages to expansion. These are all vital business costs. Knowing they’re taken care of could be the boost your business needs in order to come out on top.

Like equipment loans, working capital loans are considered short-term, and they give you a lot more lee-way in terms of what you can do with the money.

Working capital loans also come with less risk, and you can get approved for a working capital loan even with a bad credit record or no credit record at all.

Collaborators and External Investors

External investors can be a great idea for business owners. However, you should think twice if you are considering a collaboration just for capital.

Here’s why:

Bringing in an external investor means they will want something in return for their investment, which is often a percentage of your business. This can trap business owners into long-term contracts, and could even end with your company being taken over.

Approached with care, external investors can be a great help. But keep in mind they will probably stick around a lot longer than a simple loan after the money has been used.

Funding with Crowds

Crowd funding has gotten many great ideas and concepts off the ground. There’s no reason why it couldn’t work for your business too.

If there’s enough of a demand and willingness to contribute to the idea, you can crowd fund some of your venture’s operational costs. Crowd lending is an increasingly popular option, too, for those who need it.

Matthew Gillman
Matthew Gillman is the founder and CEO of SMB Compass, a bespoke business financing company focused on providing financing and education to small businesses across the U.S. The company has provided over $250 million to more than 1,250 businesses. Coming from a family of small business owners sparked Matthew’s passion to not only become an entrepreneur, but also to work with his fellow entrepreneurs to build long-lasting relationships.

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