Cannabis is currently medically legal in thirty-three states and recreationally legal in eleven states. The cannabis business industry is presently a $ 20 billion industry and significant moves are being made constantly to turn this industry into a global juggernaut. With these impressive figures, smart investors and entrepreneurs are seeking ways to maximize the cannabis market, and you should be doing the same.
It is not enough to know how valuable the market is or have a passion for the industry. You also need to hit the ground running, and for this to happen, you will need capital. Although the CBD sector can deliver impressive returns on investments, you need to get into the market first.
The importance of capital cannot be stressed enough, especially in the cannabis industry. Do you know that in 2019 alone, $ 8.1 billion was raised by cannabis companies. This goes to show you that raising capital is the fuel you need to bring your ideas to life.
So how can you also raise capital in this niche? What steps can you take towards securing the funds you need to succeed in the cannabis world? Read on to find out the top nine ways through which you can raise capital in the cannabis, hemp, or CBD niche.
Have a detailed accounting report
The first step to raising capital in the cannabis, hemp, or CBD niche is to have a concrete and detailed accounting report. Some cannabis founders struggle to raise capital because they don’t have a niche-specific accountant.
Even if your current cannabis venture is still at a small-scale level, you will need to know your business’s financial health. Investors want to know how your venture is performing right now, losses you’ve had, and other bookkeeping details.
You can attract an impressive number of investors through well-documented cost accounting that cuts across all aspects of your business model. Yes, cannabis and hemp niches have complicated accounting processes but working with a credible accountant simplifies the process.
What’s your pitch deck?
Next, you will need a persuasive and straightforward pitch deck. Your pitch deck shouldn’t be too long that it becomes too hard for the potential investor to read through at a glance.
Most cannabis investors who have the capital you need don’t have the time to look through very long business plans. They will judge your readiness based on the conciseness of your pitch deck and the details. As for conciseness, it shouldn’t be too long; it should be short enough such that you can express its content while on an elevator ride.
Some of the important components of a successful pitch deck include:
A compelling brand story details how you started your cannabis venture and what you seek to achieve.
Your market analysis
Your business model
Pricing margins and financial model
What you are offering the investor
Create a 5-year financial model
You can also easily raise capital by creating a 5-year financial model that aligns with all you say in your pitch deck. Investors care about numbers, and all the numbers they want to see that will convinced them to release capital should be in the financial model.
Your financial model should also be a 5-year model showing how the business will thrive within that timeframe. Include all financial statements, best and worst-case scenarios, and a summary of the entire model.
Develop a capital and entity structure
Before raising capital, you need to analyze and set up a capital and entity structure which most investors will demand. The investor will most likely ask if the company is a flow-thru or a C-corp venture, with the latter being the most preferred one.
The investor will prefer the C-corp venture because it reduces his risks and tax rates with your company being a startup. At this stage, you may have to work closely with a cannabis business developer to properly structure your business entity such that it becomes appealing to investors.
Do you have a pragmatic company valuation?
A pragmatic and realistic company valuation process is an essential aspect of raising capital. For example, if you offer 10% of the company at $ 1 million, it means the company is worth up to $ 3 million before raising capital. The investor now needs to know how much 10% will be worth in five years (remember your five-year financial model?)
To understand company valuation, you should ask some critical questions:
Is the valuation realistic?
Does the company have other assets aside from a cannabis license?
How was the company pre-revenue?
Discover your Unique Value Proposition and Unique Selling Proposition
Your UVP explains the features and characteristics that make your cannabis business stand out from other ventures. The Unique Selling Proposition articulates why the customers buy from you and not from other businesses. To raise capital, you will be required to discuss both ideas with investors.
Get a license
If you don’t already have a cannabis license, this is the time to get one because no investor will provide capital for a venture without a license. You should be seen as a serious-minded business owner capable of multiplying the capital you raise, and a license is required to show your dedication.
Gain access to investors
With all your plans in place, you can reach out to pools of investors, showing them that you’ve got a great product and team to conquer the cannabis niche. So you need a strategy on how to gain access to such pools so you can pitch your idea.
Some investors have lost monies to cannabis investments, hence getting an outright no at some meetings. But don’t get discouraged now: for every investor that says no to you, investors are willing to say YES!
You can also get capital and subsequent funding access through crowdfunding. Crowdfunding gives companies opportunities to gather money from a large number of investors, sometimes through the internet. You can also crowdfund from friends, family, members of your local community who believe in your mission, and even strangers.
But to access crowdfunding opportunities, you will need legal help because there are many regulatory issues to tackle. More so, some crowdfunding opportunities may require you to sell off a part of your company (equity). It should be noted that some opportunities may not require equity; the legal representative will help you with such instances.
The cannabis industry is overflowing with wealth, and smart business owners are at the forefront taking advantage of the cannabis boom to make a profit. However, before you can enjoy the benefits of this industry, you must create a business system. Systems are funded by capital, and this article has explained the top nine ways you can raise capital for your business in the hemp, and CBD niche.
At first, it may seem like you are not making progress when investors turn down your pitch but don’t give up. If you give 100% effort to these steps, you will convince investors, raise capital and succeed in the cannabis niche.