The cannabis industry is already large, and it is only expected to grow as more states legalize marijuana for medical and recreational use. This makes it a good industry to get into as either a business person or investor because there is still room for growth and the potential for a high return on your investment (no pun intended).
However, despite its rising popularity for both consumers and investors, securing a cannabis business loan can be challenging. This is where alternatives such as hard money lenders come in for growers and retailers who need short-term loans or want to buy property for their cannabis businesses.
Even if you’re not a grower or retailer, you can benefit from the boom by investing in real estate for use in the cannabis industry. For example, commercial real estate investors who own large properties such as strip malls and industrial buildings are leasing to cannabis tenants because they often pay 2-3x more than the traditional rent.
Opportunities in the Cannabis Industry
The cannabis industry has seen unprecedented growth in the past few years, with an increase of more than 50 percent in 2020. This trend is expected to continue with a predicted CAGR of 32.04 percent from 2021 to 2028. The expected growth creates opportunities across the entire cannabis supply chain from growers and processors to recreational retailers and medical dispensaries.
Savvy business owners and investors who ride this wave have the potential for strong returns for years to come. However, because of the legal nuances, there are some challenges to overcome.
Challenges of Getting Cannabis Business Loans
Traditional loans for real estate require equity or a large down payment, which not every business owner or investor has. Even if you do have the cash and are a qualified borrower, banks might not lend you funds for use related to the cannabis industry because of federal regulations. Even though cannabis is legal in many states, it is still not legal at the federal level, and most banks are governed by federal laws.
Potential legal issues also impact the ability to get short-term loans to cover investments in equipment, payroll, and other start-up or growth costs. Pursuing alternative lending solutions is one way to overcome the challenges of securing a traditional bank loan.
In addition to the challenges of getting a loan to buy a building, growers have other priorities and often prefer to simplify their operations by leasing space. This represents an opportunity for real estate investors to buy suitable properties and rent them to both cultivators and dispensaries.
One way to secure a cannabis business loan is to work with private investors. This allows you to work out your own terms and conditions, but it is not necessarily an easy path or a way to get fast cash for a hot real estate opportunity or immediate business need.
Securing a private investment can be time-consuming because you often have to pitch to multiple investors, and it is especially difficult if you don’t already have an established network. This type of arrangement also makes you accountable to your investors, and it may require you to give up equity in your business. Private investors also run hot and cold as the market fluctuates, so this is not always a reliable source of funding. Additionally, private investment in your cannabis business means you’ll be giving up equity, a cost that may weigh more than interest in the long term.
Hard Money Loans
Hard money loans, an alternative to banks and private investors, allow you to get qualified and approved fast for a cannabis real estate deal or short-term business loan. If you’re in the cannabis business, you can use hard money loans to purchase properties for cultivating, processing, distribution, and retail sales. If you’re a real estate investor, you can secure funds to buy investment properties and lease them to cannabis tenants. You can also take advantage of hard money loans to pay off your existing bank lender to reduce the risk of the existing lender filing a notice of default. You don't want to be caught with your pants down. Banks are known to charge exorbitant fees to get you out of their loans.
Of course, no investment comes without at least a little risk. The future of cannabis is promising, but the legal landscape is always evolving. At this point, the best real estate investments are buildings that have multiple potential uses, so if your cannabis rental plans don’t pan out, you have other options.
Get Funds Fast with Socotra Capital
If you’re having trouble getting a cannabis business loan from a traditional bank or private investors, a hard money loan could be the right solution. Get preapproved in a matter of hours so you can make an offer on the property you have in mind or build relationships with suppliers. When your loan is approved, closing also happens quickly, so you can secure a property, make improvements, or grow your cannabis business. Start your application today to get the ball rolling.