Speaking at the High Times Business Summit 2015 in Washington, D.C., Scott Jordan, Director of Business Development for Dynamic Alternative Finance, laid out his top 10 tips for cannabusinesses forced to think outside the box for financing. Then there was an extra that may trump all others.
Jordan is a self-described “debt guy,” focused on helping entrepreneurs protect their equity, and his 10 tips are as follows:
- “The very first thing you ought to do is to get all the credit cards that you can,” Jordan told his audience. He recommends then using a zero percent balance transfer strategy: “Charge up on a card. Don’t get above about 60 percent, then transfer to a zero balance card and take the next 12 to 18 months to pay off that the balance.” Jordan recommends this strategy particularly for those who need $100,000 or less. He additionally suggests attaching a credit card to a Paypal account to pay for labor and other expenses. “It’s the easiest way to do that if you don’t have money in your checking account.”
- Number two is to take out working capital loans. Cash advance companies, he suggests, may be the easiest place to get loans because they are willing to play in the marijuana space.
- In his experience, equipment leasing generally requires low money down or a 10 percent deposit. Then entrepreneurs can generally get a 2- to 4-year term. He described a $430,000 equipment lease he worked on for a San Francisco collective called “Spark” that had a 3-year term and a rate in the mid-teens. The deal reportedly allowed the business to stop buying wholesale with resulting increases in profitability and efficiency.
- Sale/leaseback of an asset is another option. “A lot of time you can take your existing equipment and basically refinance it. You give the title to the lender and the lender gives you the money that your equipment is worth today. You start making payments, and it will allow you to manage your balance sheet and pull cash out of the existing equipment that you’ve got.”
- Peer-to-peer lending, from sites like Cannafundr, is another new financial innovation. These allow individuals to lend to other individuals through a platform.
- A home equity line of credit may be the least expensive way to borrow. Depending on the equity in the home, it may, he suggests, be a great way to borrow.
- Business lines of credit may also be a good way to have access to cash.
- Jordan announced that he has put together a group of a dozen private lenders who want to remain anonymous. “Private lenders are a great way to go,” he noted.
- An additional alternative is factoring accounts receivables. “If you have a product, you can get factoring companies that will do an advance on your existing receivables and give you cash now.”
- A number of new crowdfunding companies including Indiegogo support cannabis projects.
The bonus suggestion he offered was that it is essential for every marijuana entrepreneur to own his or her own real estate, if possible. Jordan noted that tenants may have no way of recouping the cost of improvements if faced with lease termination or eviction. Owning real estate is also an important route to wealth accumulation through capital appreciation. Owners have the chance to use real estate as collateral for loans or to lease the space to the next upcoming marijuana entrepreneur.
He recommended that those who do not have a down payment attempt to find an investor to buy the space and lease it to them because, if nothing else, this will create a supportive landlord/tenant relationship and the landlord may be willing to offer an option to purchase.
Jordan, who was also a presenter at last spring’s Marijuana Investor Summit in Denver, sees debt financing as an important tool that can allow canabusinesses to obtain the financing needed for growth while allowing a business developer to preserve equity and retain control when the fledgling business takes flight.