As patient numbers grow and access to medicinal cannabis accelerates, there’s never been a better time to join the industry says Savvy PR and communications manager Adrian Edlington. But make sure you have the right funding in place first…
The medicinal cannabis industry in Australia was worth an estimated A$103 million in 2022 with an estimated annual growth rate of 29.6% from 2023 to 2030.
With support for medical cannabis increasing, as well as states and territories looking to liberalise recreational use, there’s never been a better time to make a play in the cannabis industry.
In fact, there are several companies growing or cultivating cannabis varieties listed on the Australian Securities Exchange (ASX).
However, due to the legal ambiguities around cannabis cultivation in some states, and the time it can take firms in the sector to deliver a return on investment, banks and lenders still remain hesitant to fund or invest in cannabis – or even hemp – businesses.
There are more than 50,000 uses for hemp-based products including industrial material, food, and therapeutics such as medicinal cannabis.
Whether you’re looking at cultivation, medical research, wholesaling, retailing, or any number of value-added services that use or contribute to the industry, there are many different options to finance your cannabis business.
Banks and loan financing
Most small startup companies, when they are looking for OPM capital (other people’s money) turn towards a bank or business lender. This is a popular financing option because it offers stability in terms of being a fixed ongoing cost for a startup – borrowing a set amount of money for a period of time and paying it back with interest.
Banks and lenders can offer different types of financing depending on the nature of your cannabis business.
A retail business may want to look to equipment finance or leasing for IT equipment or niche products. A service business may want to access a line of credit which one can draw on as needed to ensure cash flows freely. A term loan may be required if you want to secure office or warehouse space – and these can also be leased as part of an overall finance package.
Just remember to acquire long-term assets with long-term liabilities, and vice versa, to avoid running out of operating capital.
Private equity finance
Another source of investment investment capital comes from private equity. Private equity firms are usually a consortium of high-net worth investors. This consortium purchases a percentage stake in a startup, providing it with capital to eventually return their investment later down the line.
Private equity firms may also provide corporate advisory and management oversight to assist the company achieve sustainable or accelerated growth.
On the part of your cannabis business, you will need to ensure your business plan is solid and attracts the attention of these high-net worth investors in the first place.
Sometimes, these businesses can become part of “startup accelerators” or “incubators.” Some of these private equity firms may take advantage of research and development grants or tax breaks.
If private equity firms don’t see a solid return in the medium-to-long term, they will put their money elsewhere – which makes private equity far from a ‘sure thing’.
Crowdfunding
Another new option for financing a company in Australia is through crowdfunding or crowdsourced finance. Unlike traditional crowdfunding where people make ‘pledges’ in exchange for a product, private crowdsourced finance gives retail and sophisticated investors direct access to shares in a startup company or business looking to expand.
For example, Cannaponics in WA set up a crowdsourced finance campaign through Birchal, which specialises in fundraising of this nature.
The barrier to entry for investors is low – some can invest in startups with as little as $100. In return, they are given shares in the company. People can register their interest initially; if a minimum funding target is reached, the campaign is funded, and shares are issued.
Your business plan and finance
Whether your cannabis business focuses on research, retail, commercialisation, or wholesale, you will need to create a business plan. This plan should include details on:
- What your mission or goal is in the marketplace.
- Potential strengths, weaknesses, opportunities, and threats (SWOT analysis).
- How the money will be invested and where the company will derive revenue.
- Whether your business will need to comply with regulatory requirements.
- How you will re-invest profits – or issue dividends to stockholders.
- Your current profit and loss statements and credit score.
If you’re unsure about the current state of the cannabis industry, subscribing to industry publications, attending trade shows and events, and connecting with other players in the cannabis space can help you build your knowledge.
It’s always wise to ‘test the waters’ of your idea before asking for money to fund your business and possibly become the next big Australian cannabis entrepreneur.
- As spokesperson at savvy.com.au, Adrian Edlington writes regularly on business-related topics in Australia including finance and insurance.
