Raising capital is one of the most daunting aspects of launching any business, but especially in the cannabis industry. Because of the plant’s federally illegal status, company leaders must navigate myriad challenges that make access to traditional lending sources, such as banks, more difficult.
This issue includes a pair of stories that offer potential avenues for cannabis businesses looking for cash to launch or expand their cultivation businesses.
Going public is one strategy companies can use to raise large amounts of capital, and with the rise of SPACS, there are more choices for cannabis businesses than traditional IPOs. Advice from cannabis leaders who have taken their companies public and tips from financial experts can be found in this month's issue.
Sale-leasebacks are another option companies can explore to free-up capital tied to property investments by working with real estate investment trusts (REITs) that acquire properties and lease them back to businesses. REITs are traditionally hands-off landlords, and the money from the deal can allow cannabis businesses to expand or upgrade their facilities.
Temescal Wellness found this to be a successful path as the vertically integrated cannabis company grew its operations in Massachusetts, says Temescal’s CEO Ted Rebholz. The company’s experience—plus advice for navigating these deals— is detailed throughout the September issue. However, the sale-leaseback process took time, and Rebholz said taking a year or two to vet companies and find the right partner may be a typical timeline, as the agreements can last for 15 to 20 years.
“It’s like dating,” Rebholz says. “You’re not just looking for a check; you’re entering a multi-decade relationship. It’s important to put in the time and shop around, not only for price, but to figure out who is going to be a value-added investor.”
That sentiment about the importance of investment relationships going beyond money was echoed in the “Raising Capital For Your Cannabis Business” session at Cannabis Conference, which took place last month at the Paris Las Vegas Resort & Casino.
Session speaker Scott Reach, founder and owner of RD Industries, parent company of Rare Dankness based in Colorado, said he had more than 30 meetings as he was trying to secure $6.5 million toward a cultivation facility he was designing and building in Denver. What helped lock in the deal was his clear vision and the strong brand Rare Dankness had built, he said, but Reach had to be patient to find lenders he could trust.
“Initially it was about who had the money and who was going to show me the money,” Reach said during the session. “As time went on, vetting those investment people became very important.”
No matter what route cannabis companies take to secure capital, working with investors who also bring experience and skills to the table is essential to a good business deal and long-term success.
