A Tale of Two States

A Tale of Two States

In the Mitten State…In just a few weeks, the State of Michigan begins accepting applications for recreational marijuana licenses.  The current legislation favors those who already have medical licenses since others cannot apply for recreational licenses for two years.

The upside for the market is enormous.  There are currently almost 300,000 medical users in the state, most of which likely convert to recreational users beginning early next year, when the legislation becomes fully operational.  Some estimates have MJ sales in the state topping $2 billion annually. That prediction is because Michigan is the second-largest medical marijuana in the country. By comparison, Colorado, which is the oldest marijuana market in the nation but 4.3 million fewer residents, surpassed $1.5 billion in sales in 2018.

Michigan is also experiencing a serious shortage of medical-grade, legal flower.  This shortage is causing prices to continue to rise. Currently wholesale prices are around $4,000 per pound, contrasting sharply with Colorado’s $1,000/pound wholesale price.

Michigan growers need to be cautious regarding the current inflated prices, however. As more and more growers come on line, prices are expected to drop.  A well managed grow operation should still be very profitable, even at a lower price point. 

Meanwhile, in the Land of Lincoln…Last week, Illinois began accepting applications for dispensary licenses. The state has not yet begun licensing new large grow operations. Based on what we’ve seen in Michigan, which followed a similar timeline, this will create large shortages in the Illinois, as well.

This situation could result in an ideal situation for cultivators. In the first few years of the program, Illinois grow licenses will likely prove especially lucrative. Cannabis shortages drive up the cost of wholesale product and allow growers to sell their harvests easily. This is the perfect storm for generating huge profits at the grow level.

The Take Away

In both Michigan and Illinois, the window to take advantage of this product shortage won’t last forever.  Having an extra year or so of high-margin sales can allow your cannabis company to capture these profits and build financial resources for future growth.  For this reason, consider using cannabis real estate loans and cannabis construction loans to kick off your project sooner vs. later. We have several lenders who can close and fund real estate loans for cultivation facilities within 30 days, which allows our clients to take the fullest advantage of today’s wholesale prices.

At Seed To Sale Funding, we maintain relationships with over 20 cannabis private money lenders, family offices high net worth individuals and others, who lend their own money, make their own decisions, and therefore can make cannabis loans that banks cannot.  Transactions include cannabis real estate loans, cannabis construction loans, sale/leaseback transaction, working capital, and acquisition financing. Many of these loans are available for marijuana startup financing, including new cannabis grow facilities, while others are more suitable to established businesses.  

Contact us today and let us assist you in raising the cannabis debt financing that your business needs.

Judy Rinkus is a former bank executive who is CEO and Founder of Seed To Sale Funding, a unique consulting firm specializing on providing debt capital to marijuana and hemp businesses located in the United States and Canada, including both Michigan and Illinois.  

Don’t Bank on the SAFE Banking Act

Don’t Bank on the SAFE Banking Act

Last week, The House of Representatives passed the long-anticipated Secure and Fair Enforcement (SAFE) Banking Act. If enacted, the Act will protect banks and credit unions from being targeted by the federal government for providing services to the marijuana industry.  The Act passed the House by an overwhelming margin of 321 to 103, and now heads to the Senate. Unfortunately though, many commentators feel that the odds that the Senate will pass the bill are fairly low. 

Despite the likely challenges in the Senate, it’s no surprise that the cannabis community was euphoric when the Act passed. Our clients often tell us that their number-one business concern is the lack of banking and business loans.  Currently there are only a few banking institutions (typically, small banks and credit unions) which will allow marijuana-related businesses, or MRB’s, to maintain banking accounts and process cash transactions. The major credit card companies, such as MasterCard and Visa, do not allow MRB’s.  These limitations force many MRB’s into a cash-only environment. This not only presents security and compliance issues to the business itself, but also encourages money laundering, crime and fraud, creating a public policy issue to society at large.

Even if SAFE banking does become the law of the land, how much will really change?  The answer is, probably not much.

First, realize that just because a bank is allowed to offer MRB accounts doesn’t mean that it will.  Banks have complicated decision-making practices and loads of compliance issues, and the bigger the bank, the more complicated the policies are. Therefore, don’t expect large national banks to offer accounts any time soon.  Smaller banks and credit unions are usually more nimble and may jump on the bandwagon sooner.

Second, all banks maintain a list of what are called “High-Risk Industries”.  Banks offer accounts to these industries on a very selective basis, and usually charge higher fees.  The industries on this list are surprisingly diverse, and range from mainstream business such as staffing companies and payroll processors, to traditionally “shadier” enterprises such a pawnshops and casinos.  The reasons that a particular industry is included on this list could range from objective reasons, such as a propensity for money laundering, to subjective reasons such as “Headline Risk,” or the risk that the bank’s name might garner negative publicity.  It is likely that marijuana-related businesses would be placed on this High Risk Industries list at many banks, which may continue to limit these accounts.

Third, the passage of the Act is unlikely to change the banking industries’ appetite for cannabis business loans.  Regulated banks in the U.S. are among the most conservative lenders in the country. One the other hand, the marijuana industry is arguably one of the riskier industries around, since the industry is still quite new and therefore unproven. For this reason the banking industry will continue to tread very carefully in this space for some time to come. 

So, were does this leave a marijuana business in need of banking services and capital?

At Seed To Sale Funding, we maintain relationships with over 20 cannabis private money lenders, family offices high net worth individuals and others, who lend their own money, make their own decisions, and therefore can make cannabis loans that banks cannot.  Transactions include cannabis real estate loans, equipment loans, hemp purchase order financing, working capital, and acquisition financing. Many of these loans are available for marijuana startup financing while others are more suitable to established businesses.  For vetted lending clients, we also offer referrals to MRB-friendly banks and credit unions for bank accounts.

Contact us today and let us assist you in raising the cannabis debt financing that your business needs.

Judy Rinkus is a former bank executive who is CEO and Founder of Seed To Sale Funding, a unique consulting firm specializing on providing debt capital to marijuana and hemp businesses located in the United States and Canada. 

_ESTATE PURCHASE AGREEMENTS

Welcome to the new Seed to Sale Funding (SSF) blog!

Our mission here will be to inform, educate and even inspire those who have taken a bold step into the booming hemp and cannabis industry. Be sure to stop back regularly as we explore current topics on business trends and best practices among hemp and cannabis growers, producers and retailers.

SOME CURRENT FACTS

It’s no secret that legal marijuana sales have emerged as one of America’s top growth industries. According to a recent March 2019 article on FitSmallBusiness.com, 43 of the 50 states in the U.S. allow some form of marijuana use. The majority of that number currently restrict use to the medical marijuana side, but the across-the-board legalization states club has now grown to 10: Maine, Vermont, Massachusetts, Colorado, Nevada, California, Washington, Oregon, Alaska and our own Michigan. 
Regulated dispensaries continue to open throughout this group of states, and reveal this article’s most compelling statistics: at an average startup cost of around $800,000, these facilities generate a profit of nearly $1.1 million on revenues of around $3 million. At a projected 2018 growth rate quoted on The Motley Fool’s fool.com website of 42%, those figures will only continue to make the business community take notice.

LEGISLATIVE HIGHLIGHTS

With Gallup reporting that 66% of Americans now favor some type of cannabis legalization, efforts to reverse the Fed’s listing of marijuana as a dangerous Schedule 1 drug are continuing. An April 2019 article on theverve.com highlights two of the most promising initiatives being debated: the Ending Federal Marijuana Prohibition Act and the SAFE Banking Act. The former would remove marijuana from the Controlled Substances Act, while the latter would allow banks and credit unions to conduct normal business with cannabis companies without Federal intervention. These will both be hot topics as the 2020 presidential election cycle approaches.

SUCCESS IN THE CANNABIS INDUSTRY

As cannabis businesses emerge from the unregulated black market into a top worldwide growth industry, there are many compelling success stories to be found. An excellent April 2018 article on forbes.com highlighted best practices from cannabis industry entrepreneurs, including these that apply to every successful operation:

  • Stay focused on your original course
  • Hire great people
  • Legal and regulation compliance is mandatory. No shortcuts!
  • Build your personal financial capacity or get with a team of investors
  • Be a good neighbor as part of your community

SSF’s mission is to provide professional and creative financing solutions for individuals and companies at all stages of experience and expertise in the cannabis business. email us at info@seedtosalefunding.com to discuss a variety of issues, including small business startup loans, business acquisition loans, lab equipment leasing, real estate project funding, and full range of term loans for cannabis extraction machines, hemp farming equipment, greenhouse financing and marijuana packaging machines.

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