The earliest recorded history of cannabis-use dates back to China’s Sung Dynasty during the 28th Century B.C. Over the next few millennia (during the mid-1500s), the use of cannabis plants slowly spread towards the western hemisphere. It was at this time Spanish merchants began bringing the plant to Chile to meet the demand for its strong fiber; a component of the cannabis plant with significant manufacturing uses.
In the ostensibly modern society of the 21st Century, the cannabis plant’s popularity has skyrocketed to the stratosphere practically overnight, relatively speaking. However, the recently renewed demand for the cannabis plant is based on its medicinal/recreational properties, rather than its manufacturing capabilities. About 12% of Americans consume cannabis regularly and nearly 65% of all Americans believe it should be legal, according to a 2017 Gallup research study.
In the recent past, state governments, along with the medical and legal communities, have begun to officially (and legally) recognize the varied benefits offered by this unique, and often misunderstood plant.
The Business of Cannabis
From a business perspective, today’s cannabis industry represents what some refer to as the modern gold rush (some call it the green rush!). Over the past few years, 33 states (plus the District of Columbia) have legalized marijuana/CBD — derivatives of the cannabis plant — for medicinal and recreational use, while another 17 states permit marijuana use for medical purposes only.
Cannabis industry experts anticipate that this steady decriminalization trend (and strong popularity) to continue, simply based on how the cannabis industry has performed in the states where it is already legal. Statista.com denotes that there were about 28,000 cannabis establishments in the United States in 2017.
As such, the demand for cannabis will likely create a broad spectrum of amazing business opportunities — for even the smallest of entrepreneurs. All one needs is the money to begin.
What is a Cannabis Dispensary?
A cannabis dispensary is a physical location that is regulated by state/local governmental officials. These state and local regulations set forth the conditions under which it is legal to sell/use marijuana/cannabis in its many retail forms. Most cannabis dispensaries follow a business model first used in Amsterdam in the 1970s.
A cannabis dispensary distributes different cannabis products to those individuals that possess a medical marijuana state approval, and adults in those states that have legalized marijuana for recreational use.
What are Cannabis Dispensary Loans?
Cannabis dispensary loans are business loans with proceeds that can be used to start, maintain, or expand a cannabis dispensary or any other cannabis-related business.
Cannabis dispensary loans work the same as any other business loan and requirements for approval can vary from lender to lender. However in this article we are going to specifically focus on unsecured business loans for cannabis dispensary businesses. This is funding that doesn’t require an income check or a collateral to be pledged for approval.
Unsecured Cannabis Dispensary Loan Benefits
Historically, lenders offering business loans required the business and/or the borrower to have a strong credit profile, with business financials that verify the business’s income across several years. Additionally, a lender providing traditional business loans might also require the pledging of a business asset, in addition to these other underwriting guidelines.
Unsecured cannabis dispensary loans differ from traditional business loans as these specialized loan products are offered without a need to provide–
- Business Financials.
- Tax Returns.
Given these lenient underwriting guidelines, unsecured cannabis dispensary loans are a perfect fit for startups and entrepreneurial cannabis-related ventures. Additionally, an unsecured cannabis dispensary loan offers the following benefits-
- A smart way to begin building a business credit profile to support future endeavors.
- Lenient underwriting approval criteria.
- A cash flow resource, when funds are short.
- There is no collateral requirement.
- A prudent source for emergency funds.
- No Restrictions on how the loan proceeds can be used.
- The risky nature of unsecured, no income check financing requires the bank to adjust the interest rate upward to compensate for this risk.
- Maybe too costly for certain business uses.
Getting Approved for Unsecured Cannabis Dispensary Loans
Unsecured cannabis dispensary loans are a great financing option for startups and/or entrepreneurs who do not meet the strict requirements of a traditional business loan. And while a lender will not use income ratios to determine a loan approval, they will evaluate the credit profile of the business (if one exists) and the business owner’s credit history.
New Cannabis Dispensaries –
A new cannabis dispensary with a limited (if any) credit history must rely on the business owner’s judicious use of credit. A strong credit history generally reveals a credit score of 700 or above. However, this benchmark may be lowered should strong compensating factors be present in the loan scenario.
Existing Cannabis Dispensaries –
Those cannabis dispensaries that are already somewhat established can secure additional financing for expansion through a revenue-based cannabis dispensary loan. These cannabis dispensary loans resemble the workings of an ACH loan, or an MCA — a Merchant Cash Advance. The revenue-based loan allows the business owner to finance future receipts/earnings to secure the working capital to expand.
It is noted that revenue-based lending tends to be more expensive, however, this loan product offers an alternative financing option that is –
- Available quickly.
- Based on the monthly revenue of the business and not the business’ profit or net income.
How to Use Cannabis Dispensary Loans Smartly
A cannabis dispensary loan can be used in many clever ways. Each cannabis business investment has its own unique startup costs and legal paths to ownership. Here are a few examples to consider-
Open a Dispensary
To get started check to see if local laws support the sale and distribution of cannabis. Startup costs include a storefront location, computer systems, licenses, and inventory.
Open an Edible Company
Cannabis edibles have become a large portion of the retail sales in the cannabis industry. Non-smokers prefer cannabis-infused candy, chocolate, brownies, and coffee, among other options. One should expect to finance professional kitchen equipment, in addition to other relevant startup costs.
Make Cannabis Accessories
Cannabis accessories include tools used by legal marijuana users. It is noted that this type of business would not require a marijuana license because the store would not be selling marijuana, but equipment like grinders, filters, and pipes. Startup costs would resemble the opening of any storefront business.
Dispensary Security Services
Federal banking regulations spook banks enough that they often refuse to grant typical business services (Like accepting credit cards) to marijuana-related businesses. This is a result of the fact that federal laws bump up against state laws in this matter.
As a result, the cannabis industry tends to operate on a cash-only basis; which is why the need for security services arises. As a service industry, the startup costs for a security company are generally reasonable.
The Bottom Line
The cannabis industry of the 21st Century is only in its infancy. The next few years should be quite interesting for business professionals supporting the distribution of legal marijuana.