Creative Capital: Unconventional Cannabis Operator Financing

A common story told by cannabis companies is the multiple and diverse ways they’ve bootstrapped, financed, and scaled their medical and adult-use businesses.

What you don’t tend to hear is the same financing story twice.

“All the conventional reservoirs of capital are just not available,” says Sturges Karban, the CEO of California-based MJIC Inc, a B2B infrastructure and last-mile distribution channel that plans to launch their IPO later this year.

“There is no Sand Hill Road here; there is no Palo Alto.”

In other words, in the cannabis space, entrepreneurs have had to get creative — and remain flexible — to launch and grow their operations. Karban explains that more traditional investors (like those you would find scouting at tech incubators) are only now considering cannabis an opportunity worth pursuing. And many U.S. banks or investment funds won’t even contemplate financing cannabis companies while the substance remains federally illegal.

So cannabis startups have had to to find alternative funding options.

Shanel Lindsay, founder and president of Ardent Cannabis, a Massachusetts technology company that sells tabletop decarboxylators (which activate cannabis for consumption), has a financing story that’s as close-to-home as they come.

“My earliest investor was my mom,” she says. “She came in as ‘friends and family’, and then I had a few smaller investors from Boston.”

Lindsay says she’s built her business on less than $600,000, mostly because “it’s tough to get money in the cannabis industry, especially when you’re early before revenue.”

Lindsay credits the success of Ardent to debt — specifically, leveraging strategic personal loans to launch her commercial device. “Small loans … have really allowed me to hold on to my equity,” she says. “If you can use debt or some other interesting structures like royalties to hold onto some of your equity, then that can be a great alternative.”

In Canada, more mainstream funding options are available than in the U.S., but operators still often end up seeking investment from a variety of sources.

“For us, equity financing was a critical component,” says Myrna Gillis, CEO and co-founder of Nova Scotia-based aquaponics company Aqualitas. “But we also thought a little bit outside the box.”

Gillis explains: By leveraging research and development financing from National Research Council Canada’s Industrial Research Assistance Program, and capital market company Innovacorp — while also partnering with local academic institutions — Aqualitas was able to secure major capital.

“But really, the game-changer for us — and it was a game-changer — was Arcview,” Gillis adds, telling the story of how a $1,500 provincially-backed pitch video led to an $8 million investment in the exempt market.

“We were literally followed out the room by a crowd of people who had been seeing the same thing over and over again, until our story came along,” she says.

Luckily for up-and-coming cannabis businesses, financing sources ranging from VC funds (who have invested $300 million USD in the industry this year) to going public continue to open up.

For more insights on the legal U.S. cannabis industry, financing for cannabis companies and more, sign up for Tidal Royalty’s bi-weekly newsletter.

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