Bootstrapping, taking on investors, or taking on debt, have you weighed your options for what’s best for your cannabis company to scale and grow? We will discuss funding options available for cannabis companies today.
As many are aware, investors are sitting on the sidelines waiting for rescheduling, or descheduling for full legalization on the federal side of the cannabis industry.
That can mean raising funds for your cannabis company can be more difficult than just bootstrapping your business, or taking out debt to pay for basic operations, let alone to scale and grow.
The cannabis industry has not enjoyed having to figure out alternative funding options, unlike the early days of state legalization, as investors were willing to take on the high risk industry in hopes of quick payoffs.
Many investors came onto the scene willing to invest, but have been burned by bad business decisions, mismanagement of funds, and companies going bust.
So what’s the best route for growing and scaling your cannabis brand?
Let’s examine the options.
First, you can bootstrap your operations which is a slow yet controlled growth option, meaning you make money, and reinvest into your business and grow slowly as funds allow. This is how many small companies get going and maintain–through personal investment from the founders. This can mean you’re running on tight funds, and there is not much margin for errors.
One wrong move can mean closing down operations, regulatory fines/fees can cause big trouble, not being able to move product, and losing momentum if there are any hiccups in the supply chain.
What are the benefits of bootstrapping? More control of your business without having to give up equity, or having to answer to anyone particular.
Next, you can take on investors, but you’ll have to hunt hard for them. Once you find one, you’ll negotiate a percentage of equity you’re willing to exchange for a chunk of money that the investor is willing to provide to help your company scale operations, or invest in marketing and advertising.
What are the benefits of bringing on investors? Getting mentorship and business advice from an investor that may have experience in growing businesses with the added benefit of tapping into their network, resources and knowledge of scaling operations.
This can be a smart move depending on your goals, but depending on the valuation of your company, can mean you give up more equity than you’re comfortable with and leave you having to account for and answer for every decision you make within your company.
Finally, you can take on debt to finance scaling your cannabis business operations, or to invest in marketing to gain traction and establish your brand to build brand loyalty within your target market. The downside to this is you’ll have to repay the debt, but it also means you’ll retain equity, and can make any decisions you’d like, and of course will have to be responsible with the funds as you will be on the hook to repay those funds.
The benefits of this will be you can have more cash flow to scale operations and marketing efficiently. It depends on your goals, and the vision you have for your brand and your place in the market, but getting quick access to funding and only having to answer to the banks is what this industry has been lacking while it’s attempting to get established and thrive.
Bonus option: You can also create a revenue share/ownership with employees, co-op style, but that deserves a whole other article on how companies are changing the way their businesses are run for the good of the whole, not just the good of the founders, investors, or shareholders.
Don’t be mistaken, while this industry is still in its infancy, it is growing rapidly, so choose your player…but choose it wisely in regards to what makes sense for your company’s goals in the short term and long term.
For more information about marketing services, please visit iFreshly Digital to schedule an exploratory call today!
