Cannabis Fintech: Financing Your CannaBusiness in California
It takes a special kind of entrepreneurial spirit to succeed in the cannabis industry, but especially in California, the country’s largest recreational cannabis market. This post covers actionable tips for addressing some of the challenges leaders often face, including California cannabis business financing — and some alternative financing options.
The Cannabis Financing Challenge in California
The continued federal prohibition of cannabis makes it challenging for cannabis businesses in every state to access banking services, including loans, credit cards, and even traditional checking accounts. This puts cannabis businesses in a tricky corner, operating a cash-heavy business.
Unfortunately, cash-based businesses face increased security risks and the potential for theft. Being locked out of traditional banking services means a lack of access to financial tools to help meet cannabis business goals, even ones as small as accruing interest.
These challenges are compounded in California by the cost of compliance with state regulations and the cost of doing business. The complex regulatory environment in the state and high taxes on products at all stages can create financial burdens for cannabis businesses, especially when starting out.
Sources of private money have also dried up since initial legalization. While many investors simply refuse to take cannabis businesses because of the stigma of the plant, there was an initial wave who saw recreational legalization as an easy green wave, but the years since have proven that turning a profit in California cannabis is anything but simple. Hesitation from private investors and reduced banking opportunities create limited growth and cannabis financing options.
Cannabis Fintech: Bridging the Financial Gap
It is not, however, impossible to find banking and financial solutions in California cannabis. It just takes grit, adaptability, and a willingness to think outside the box. This is where fintech companies come in, opening the door for alternative cannabis financing options.
Payment Processing Solutions
Private fintech companies can provide financing solutions for payment processing that help address the challenges of running a cash-heavy business. Working with a secure platform helps alleviate some of the risks that cash businesses face, increasing the security of their operations, and improving efficiency. Many of these companies operate in “high-risk” industries, which means they have experience in the specific needs of mitigating cash risks across industries, not just in the cannabis space.
A few companies offering secure and compliant payment processing in the marijuana industry include:
Banking and Lending Platforms
Where traditional banks fall short, fintech companies step in. Thankfully, the days of cannabis companies having no options for banking services are over. Traditional banks and credit unions aren’t the only option for cannabis business banking and lending needs, and today there are more alternative financing solutions than ever. Working with a fintech company gives cannabis businesses access to traditional services like a checking account (that can accrue interest!) as well as loans, financial advice, and other important financial services.
A few companies offering tailored cannabis banking solutions include:
Blockchain and Cryptocurrency
Alternative currency options present an interesting and unique opportunity to revolutionize cannabis financing. Using blockchain can help companies increase transparency in financial transactions, as well as provide more security for both the sender and receiver. Blockchain may also be able to help companies increase efficiency in financial transactions, something that traditional banking options have not yet touched.
Cryptocurrency offers the ability to reduce the reliance on traditional financial institutions as well as cash, which can reduce security risks. Alternative cryptocurrencies also facilitate access to capital outside of traditional banking methods.
Cannabis Business Opportunities in California
While operating in the California cannabis market can be challenging, there are still opportunities for those who seek them.
The Cannabis Sector Is Still A Growing Market
California boasts the largest legal cannabis market in the United States, and despite some recent compressions for product pricing, the market is expected to grow. California has a large population with a steady stream of tourists — who present an opportunity for a higher spend per transaction than residents. Leaning into cannabis tourism presents a unique opportunity for a business to capitalize on the $24.3 billion tourists bring to the state economy.
In a crowded marketplace, innovation and differentiation are key. While the interest in edibles and beverages continues to grow, so does the interest in cannabis as a health offering. How can your growing business tap into this? By creating innovative ways to bring cannabis to spas, massages, and other wellness offerings through beverages, topicals, and more.
Social Equity and Cannabis Loans
Landing a cannabis license in California is not easy, but the state has prioritized social equity in its distribution, aiming to help communities disproportionately impacted by the war on drugs now profit from legalization. A social equity standing can give a business a leg up in the license application as well as access to state grants or working capital, like cannabis business loans or real estate loans.
This doesn’t mean take the money and run — businesses receiving these funds need to prioritize community reinvestment. Building strong ties with local communities is good for both businesses and communities, helping to heal long-standing social or financial wounds through the cannabis plant. Consider this when putting together the leadership team for your California cannabis company.
Technology and Innovation Impact Cash Flow
As the home of Silicon Valley, California is a hub for technology and innovation. This extends beyond computer screens to the cannabis industry. Consider how technology can make your cannabis business more streamlined and efficient. There are new technologies to help you track growth from seed to seed, inventory management programs, and AI-powered analytics can keep your business on track and automate tedious processes, freeing up time for you and your employees.
Technology may also be the answer for innovative cannabis businesses looking to stand out. Perhaps there is a gap in service offerings for online ordering platforms or inventory management. Maybe your area is well-served for dispensaries, but lacking in delivery services. There are many license types in the California cannabis industry, and not all of them are as competitive as a retail license.
Health and Wellness in the Cannabis Industry
As mentioned above, cannabis is increasingly an important piece of the health and wellness industry, thanks to its expanding body of research-backed benefits. Federally legal CBD offers an opportunity to create a product that is not constrained by state lines while novel administration and consumption methods expand the appeal beyond smokers.
There is also still a large education gap between cannabis research and cannabis consumers. Many people don’t understand their own endocannabinoid system, let alone the difference between D8 and D9 THC. Offering scientifically validated education helps build a relationship of trust with your consumers and may attract health-conscious consumers who are looking for more than the latest wellness trend.
