2022 has been a difficult year for cannabis operations to secure capital with raises off 64.5% YTD. The cannabis cultivation and retail sector has been hit the hardest, with total capital raised down 67.0%, and more notably, equity capital raised dropping by a whopping 96%.
Go to any investor pitch competition or capital conference, and legions of worthy, viable cannabis operators are all vying for attention from the same limited number of equity investors actively participating in the market. Few of them will actually secure investment, and for those lucky enough to succeed, not as much capital is being offered as in years past.
In fact, 2022 has produced no cannabis equity deals valued above $25M at the time of this writing.
All this, while nearly 1,000 cannabis entrepreneurs are competing for New York’s first 150 dispensary licenses. For those who do win them, where does the capital come to build out operations, stock inventory, and run operations as business ramps up?
In years past, private equity investors were more accessible and eager to participate in the exciting, emerging market. The better your company promised to solve a problem, the larger the check they’d be willing to write. Today, with equity options having all but dried up, cannabis business debt financing is the highest in the industry’s history.
Alternative lending made up 54.4% of total capital raised through September of 2022, and for many operators, this sort of access to capital makes a whole lot of sense. With capital deriving from private sources, alternative lenders aren’t beholden to the same industry restrictions as banks, and the right ones can offer competitive financing terms and interest rates for cannabis operators.
National Business Capital
One such lending company is doing just that. National Business Capital (NBC) has enjoyed success in conventional business lending since the founder, Joe Camberato, began the company out of his bedroom in 2007. Fifteen years later, the lending marketplace includes over 75 lending partners and has eclipsed $2 billion in total business financing.
With an impressive Trustpilot review score of 5.0 from over 2,000 reviews, National Business Capital has proven itself to be a consistent provider of customer satisfaction and successful funding.
National Business Capital’s foray into alternative lending for the cannabis industry began five years ago, and over $20 million in capital has been funded to marijuana and CBD operators since. The company has successfully helped businesses across nearly every touchpoint of the market, from consumption devices, to cultivators, and even cannabis marketing and business development agencies, with an approximate breakdown as such.
- Biotech (5%)
- Cultivation/Growing/Farming (20%)
- Hemp & CBD Products (20%)
- Marijuana Products (20%)
- Consumption Devices (10%)
- Cannabis Marketing and Business Development Agencies (5%)
- Other Ancillary Companies (20%)
According to Camberato, his company’s CannaBusiness financing is primarily used by cannabis operators for facilitating business growth, helping cover business expenses, and venturing into new business opportunities.
To qualify for cannabusiness funding through a National Business Capital alternative lender, a cannabis operator need only meet the following criteria.
- 1 year in business
- $10K in monthly revenue
- No minimum FICO score
Rolling in Wins with a New Pre-Roll Machine
One of National Business Capital’s clients is now enjoying exceptional returns in the financing of an automatic pre-roll machine. With a $750,000 total ticket price, NBC was able to finance the equipment over four years, with a manageable monthly payment, at a competitive interest rate, all while preserving equity in the company.
“It’s really important to pull in the right lending products, because on an equipment deal the collateral is that piece of equipment and you actually leave your cash flow in your business and receivables unencumbered,” Camberato explained.
Introducing the new pre-roll machine allowed the cannabis company to better optimize its resources. With automated production, the company no longer required eight employees to hand roll products. Those critical human resources were reassigned to other parts of the business, generating greater value and contribution.
“This company was able to buy the machine, and the payment of the machine versus what they were paying eight employee salaries was like one 10th of that cost,” Camberato said. “The payment was maybe one or one and a half employee, so they basically saved 80% of what they were paying in salaries.”
“If they didn’t do this deal, it would would’ve cost them more money,” Camberato explained. “By doing it, they saved money, and those awesome employees that they had, they put into other parts of the business where they really needed people.”
The NBC financed pre-roll machine yields multiples of product quantity than were possible before, with greater product consistency.
“A lot of companies don’t even realize there’s a lot of equipment lenders that’ll do that stuff, especially that size,” Camberato said. “So that was a really special deal that we got done.”