The business of cannabis encompasses many types of companies and organizations. One significant part of the cannabis market is retail oriented. Cannabis retail establishments include dispensaries and edible sales businesses. Another large sector of the cannabis business industry consists of the market’s vital support services. These include the areas of technology, security, and/or public relations, among others. It is noted that the equipment required in setting up and maintaining a retail cannabis business would resemble any retail establishment in most other sectors of the economy.
Conversely, the cultivators and producers of cannabis plants — the growers — have a strong need for specialty cannabis equipment which, is often costly. Cannabis professional growers in need of this equipment have the option to buy the equipment (which would require a cannabis business loan) or to lease the equipment. The narrative that follows details the ways in which one can lease the cannabis equipment that is needed to succeed.
What is Cannabis Equipment Leasing?
Essentially, equipment leasing is considered a rental arrangement with a term equal to one day, a year, or many years, and everything in between. A lease payment grants you (the lessee) permission to use the equipment for a mutually agreed upon length a time; while the equipment’s ownership remains with the lender/lessor.
Cannabis equipment leasing is used to gain long-term access to the tools required to successfully grow and cultivate cannabis. This type of cannabis equipment is generally offered as a long-term lease. Long-term leases are generally preferred for cannabis growing equipment as it has an extended ‘useful life.’ Additionally, longer lease terms help to reduce the size of the monthly lease payments.
Cannabis equipment leasing is generally provided to cannabis growers who are ready to renovate and/or expand their cannabis growing operations. However, some lenders offer equipment leasing options for startups. [This is detailed below]. Here are a few examples of the equipment that is generally leased to a professional cannabis grower.
- Lighting Equipment — several choices exist and the prudent choice depends on the electric rates in your locale and the scope of the operation.
- Extractor Equipment — equipment used to generate concentrates and extractions.
- Heating, Venting, and Air-conditioning (HVAC) — airflow, humidity, and temperature control are critical to a successful indoor cannabis growing operation.
- Security Equipment — the risk of theft is always present.
Businesses Using Cannabis Equipment Leasing to Fund Equipment Purchases
In general, the cannabis industry is apportioned into two primary sectors.
- The growers who cultivate and produce cannabis mature cannabis plants.
- The sellers who provide retail outlets to distribute cannabis.
Those Who Grow Cannabis
Cannabis growers are horticulturalists and the professionals who bring forth professional agriculture knowledge and skills. This sector of the cannabis industry requires the application of scientific principles as a means to improve the end-use cannabis product. Additionally, cannabis growers face restrictive state laws that must be followed if the business is to operate legally. Cannabis growers clone and breed cannabis seeds. These seeds are then planted and monitored until it is time to harvest the plant and its flowers.
Equipment leasing is quite prevalent for cannabis growers. Equipment can be expensive to buy, which make cannabis equipment leasing a smart alternative to purchasing. However, the type of equipment required will depend upon whether it is an indoor or outdoor operation, among other criteria.
Those Who Sell Cannabis
The retail side of the cannabis marketplace rests squarely on the shoulders of the cannabis dispensaries and edible manufacturers/retailers. Cannabis sellers, like the cannabis growers, are subject to the guidelines set forth by each state. A cannabis dispensary, in accordance with state law, distributes cannabis to customers who are legally allowed to buy. More than 30 states have enacted new cannabis laws that allow for the legal cultivation of cannabis — for medicinal purposes and/or recreational purposes.
A cannabis edible business must comply with the same regulations as a cannabis dispensary because both businesses handle the same product. While a cannabis dispensary sells products to smoke, vape or as a pill, a cannabis edible company can offer the same product in a pie, cookies, a brownie, and even coffee. Edible cannabis businesses have just begun to scratch the surface of the many possibilities that exist in this realm. Options include organic or gluten-free products.
Cannabis Equipment Leasing Features
Most cannabis leasing companies offer varying rates and terms as well as different underwriting requirements for loan approval. Most cannabis equipment leasing applicants should expect the following–
- Up to 100% financing available — to qualified borrowers
- Available for existing/new equipment.
- Negotiable payment terms.
- The equipment being leased acts as collateral to the lease agreement.
- Lease amounts available — 9+ million dollars.
- Monthly payments can be deducted from income to reduce Net Operating Income and thus, tax obligations.
- Cannabis equipment leasing is a great financing option for equipment, which tends to become obsolete quickly.
Leasing to Buy
Some leasing lenders offer a ‘lease to purchase’ option that is triggered at the end of the lease term. Borrowers typically find it challenging deciding if this option is the right choice because it depends on how much a lender increases the monthly payments during the loan term as a condition of the lease-option. Be cautious when considering this offer.
Cannabis Equipment Financing For Start-Ups
Cannabis equipment financing for startups is generally considered a risky lending scenario. As such, borrowers should expect to comply with more restrictive lending requirements.
- A credit score that exceeds 650.
- Each applicant must provide a personal guarantee.
- The business should be up and running for 12 months, although there is some flexibility regarding this issue.
- If the business/business owner(s) had tax liens, they must be resolved and closed.
- Each individual responsible for the loan must show no bankruptcies for the past seven years.
- Legal paperwork regarding the business type (LLC, sole proprietorship, corporation, etc.) and government-issued identification for all borrowers.
- The business owner must submit all applicable business licenses to be considered for cannabis equipment financing.
How to Get Approved for Cannabis Equipment Leasing
Equipment leasing options for the cannabis industry are similar to equipment leasing opportunities for any other business. The process follows these general steps. The business owner –
- Identifies a need for the equipment, or he or she identifies a need for an upgrade to existing equipment.
- Obtains a price quote for the necessary equipment from an equipment vendor.
- Completes a leasing application with the lender of his or her choice.
- Submits the required documentation for lease approval.
- Submits additional documentation as required, if applicable.
- Meets with a lender employee, if applicable.
When approved, the business owner then signs a lease agreement with the terms of lease denoted in the lease agreement. Soon after, the equipment is installed and the business owner can begin reaping the benefits of using the cannabis equipment.
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