Financing the Cannabis Business: How to Manage It Properly?

Basically, the issue regarding the proper funding of the cannabis business is the complexity of its legalization. Based on the federal level, marijuana is actually not legal. However, when it comes to its utilization for recreational purpose, it is approved legally within nine states and in Washington DC. At the same time, it is also decriminalized broadly in many states.

Because of this decriminalization, the market is generally the main focus for those wanting to put up a cannabis business.

Bank Financing for Cannabis Industry

Since challenges for the marijuana industry still do arise because a go signal was not yet totally provided by the federal government. Having this scenario, almost all banks are under the governance of the federal government. However, the federal government categorized cannabis-related transactions as a criminal act, banks covered under the federal government cannot handle any cannabis money for Stocktrades.ca.

This is applicable even if the reasons for needing the money is for personal use won’t be a cause for approval. The main reason is that the bank is covered by the laws on money laundering. Once the bank is caught doing a money laundering act, heavy penalties should be imposed.

Alternative Financing Options for Cannabis Business

Since bank financing for marijuana business is not feasible, good thing, there are other financing options available. However, these alternatives are not the ideal ones, they are less stable compared to banks. Luckily, since they are not regulated under the FDIC, they are not obliged to comply on the same financial laws. And, another thing is that cannabis business startups with limited funding can now be possible.

Equity fund

Actually, there are three primary ways in order to get funding through equity. These are crowdfunding, angel investors, and venture capital firms.

Crowdfunding – this funding is very common for business start-ups.
Angel investors – this funding has an AngelList which contains section intended for assisting those who are in need of investing in cannabis.
Venture capital – this option is good for those who are planting funds for start-ups.

Debt fund

This financial options can be feasible through getting of loans via business credit cards. However, this seems to be a little bit trickier compared to the first one.

Online lenders – they offer short-term funding for marijuana business. But, they don’t give credit cards.
Debit system – the use of credit cards are permitted but a special debit system can be used.
POS systems – this funding system can allow to handle starting from the very beginning of the process up to the end point of sale.

Tips For Better Budgeting For The Year Ahead

The annual budgeting process is often inefficient, time-intensive and provides little value. The practice of budgeting shows that successful companies look beyond the financial content and also focus on ‘soft’ aspects such as culture and behavior. It is precisely this combination that enables companies to improve their results and strengthen their competitive position. After the summer, many companies restart their budgeting process to prepare the budget for next year.

The Importance and Use of Budgets Within an Organization

As an alternative, there has been a talk of ‘beyond budgeting’ for years, whereby the budget cycle is completely discarded. There are indeed companies that no longer have an annual budget round but work with ‘rolling forecasting’. However, this is a bridge too far for most companies. They do not want to abolish the budget but strive for a more efficient and effective process. But this should not be the case. Budgeting allows companies to look at current financial data whether the company has sufficient funds for future projects or whether the company needs to take out a loan, no guarantor needed. These are just a few scenarios where budgeting can help.

What does the budget process look like?

The process starts with the objectives and strategy an operating budget a liquidity budget an investment budget a balance sheet forecast. Project organizations – such as construction companies, machine manufacturers or business service providers – must also prepare a project budget as a fifth component.

How can the process and quality of the output be improved?

The budget cycle does not seem like ‘rocket science’ but is a difficult process in practice. It is not uncommon for companies to spend months discussing and adjusting the figures.

Ensure clear roles and responsibilities

The budgeting process is not a financial party for the CFO and controllers, but a company-wide process in the context of the strategy. The process is coordinated by ‘finance’ but the input must come from ‘the business’. After all, business managers can better assess what needs to be done and what is required for that. The business is the budget holder and owner of the figures, finance is responsible for the process and must make it into a coherent whole.

Don’t start too early and make a schedule

A budget is the result of the business plans. The condition is that the budget cycle has a short lead time and that there is a clear schedule stating who, what and when should be done.

Start with the sales, end with the cash

The budget process starts with the preparation of the operating budget. Finally, the liquidity budget can be made with cash flows from operational, investment and financing activities. If the company is ‘short of money’ then additional financing must be looked into in a timely manner.

Work with current data

Build the budget ‘bottom-up’ with volumes and rates or cost prices. Controllers need these input variables in their financial models to arrive at euro amounts. In addition, this allows the differences between the budget and the realization to be analyzed better later.

Manage the data

Special budgeting software can then offer a solution. There are also ERP systems in which the budget is made so that the realization can easily be compared with the budget later.

Work with scenarios

Scenarios are not predictions, but descriptions of a possible future. They provide insight into the consequences of potential events and help companies prepare for this. The development of scenarios is a learning process in which consideration is given to what the company can do if a certain event or situation occurs. By changing the input variables in the budget, what / if analyzes can be performed.

If the budget model is set up properly, then the scenarios not only pass on to the result but also to the balance sheet and cash flows. This allows companies to anticipate potential liquidity shortages and additional capital needs in a timely manner.

Budgeting is a useful activity if it is not seen as a financial exercise.