Capitalizing New Jersey cannabis license applicant startups is a serious issue. While there are few sources many can go to for money, the Cannabiz Management firm is helping many.
There are few sources for eager hustlers to take advantage of to secure the funds needed to build their dreams. Minority-owned companies seeking a New Jersey cannabis license are the most likely to have such problems.
Financing experts say the “friends and family” round of fundraising is the most important to get through. People who don’t move in circles where people have a few hundred thousand dollars to invest in a risky business, are at a great disadvantage.
It is a very significant issue. The New Jersey Economic Development Authority (EDA) has launched a program. But it will only help a few companies for the foreseeable future. There are few incubators in the New Jersey cannabis license industry helping applicants.
Capital Expenditure or Capital Expense (CapEx) is the money an organization or corporate entity spends to buy, maintain, or improve its fixed assets, such as buildings, vehicles, equipment, or land. CapEx and burn rates are notoriously high when building a new business. So, an investor will study your ability to execute your business plan precisely so it is on time and within budget.
Many new to the New Jersey cannabis license process are fairly inexperienced in business. Thus, potential investors are less attracted to these business plans.
New Jersey Cannabis License Financing Options
The two most popular financing alternatives are borrowing money or debt. You can also take on a partner to supply capital, aka equity.
Some New Jersey cannabis license applicants have turned to crowdfunding which is a very novel idea.
Launching a New Jersey cannabis retail dispensary usually cost about $500,000 to $2,000,000 to build from start to finish. Significant expenses include licensing, facility acquisition, design and build, inventory, branding, and marketing. This will burn a lot of capital.
Successfully taking on equity partners is easier said than done. The cannabis industry is littered with failed deals and broken promises to lend.
Many opportunists will finance a minority-owned company seeking a New Jersey cannabis license with several strings. The devil is in the details of Financial Service Agreements (FSAs) and Management Service Agreements (MSAs).
Even people with an approved current conditional license, some capital, awesome business plans, and cannabis industry experience have trouble securing a “good” equity partner.
Sources of Cannabis Capital
There are national and local consultants and cannabis industry experts you can work with. They assist in locating potential investors and assisting with business plan development, capital structure, key introductions, informed guidance, etc.
If your financial structure is ripe for lending, then your opportunities to attract financing are more open. A ripe lending scenario in the cannabis industry is not very complicated. Depending on the project, you will need 35% to 50% of the up-front capital required to complete your project and attract more lenders.
Interest rates will be slightly higher than loans on non-cannabis transactions.
Owning the real estate where the business will be is an asset. Its value can be used as part of the initial capital table.
Obtaining approval to build and operate your cannabis facility requires presentations to the local community. That can be very difficult, depending on the town’s cannabis policy. A few towns have very shady processes. Sometimes several presentations are needed to secure local Cannabis Board approval, Planning Board approval, and the City Council resolution necessary to open. Some New Jersey cannabis license holders have made a great deal of progress versus others.
Maintaining open avenues of communication with all sources of capital, whether they agreed to work with you or not, is ideal.
The Cannabiz Management Firm Solution
As the Principal of Cannabiz Management, I specialize in guiding licensees through planning, developing strategy, financing, building, and operating new cannabis organizations. I am helping New Jersey cannabis license applicants find money.
Additionally, I am collaborating with the SCARLETEX. It’s a marketing, advertising, design, and strategy agency eager to help New Jersey cannabis license companies.
By David Goldenberg, Operations Director/MOST Consulting Group
David Goldenberg is an expert in capitalizing and operating cannabis organizations. He is a trailblazer in cannabis risk identification and remediation. Reach out to him at david@cannabizmanagement.com.
(Full disclosure this is part of an affiliate marketing deal. Reach out for an introduction!)
