As I write there are seven countries in the world that have legalised cannabis. Cannabis, hemp and CBD oil are freely available for recreational and medicinal purposes in Uruguay, Georgia, South Africa, Canada, Mexico, Malta and Thailand. That means you can openly smoke a joint in these countries in front of a police officer without fear of arrest. For devotees of the herb that is a huge achievement. This post will look at the potential for canna business and invoice finance.
In America the dope smoker and medicinal user has options: Colorado, Washington, Alaska, Oregon, Washington D.C., California, Maine, Massachusetts, Nevada, Michigan, Vermont, Guam, Illinois, Arizona, Montana, New Jersey, New York, Virginia, New Mexico, Connecticut, Rhode Island, Maryland and Missouri all have completely legalised marijuana in their state laws. There are also a number of states that allow the legal sale of medical marijuana or who have decriminalised marijuana possession. Indeed, it is now a small number of US states that maintain the 20th Century approach of having a zero tolerance to weed smokers and that actively encourage the courts to punish growers and consumers with fines or custodial sentences.
Considering political analysis in the US tells us the country is nearly evenly split between conservative Republican voters and progressive Democrat voters this situation is puzzling. Many Republican lawmakers as well as staunch Republican voters are vexed about abortion, Medicare and postal voting but not about hippies getting high. How can that be? Is it perhaps they know weed is less harmful and addictive than alcohol? That gambling debt kills more people than dope smoking? I am not sure as health and social outcomes research for any contentious issue in the USA from gun control to abortion is normally ignored by dogmatic proponents of a certain ideology.
Indeed if you look at Thailand which has been a military junta since 2012 lobbying for any cause is largely ignored with impunity by the authorities if it doesn’t align with the junta’s aims and objectives. So even undemocratic countries have ditched their war on weed rhetoric.
The answer to this growing liberal attitude to cannabis business must be (at least partially) about money. BDSA estimated that in 2020 the global marijuana market was worth $21.3 billion and is expected to grow to $55.9 billion by 2026. These numbers are much smaller than the estimates for the global worth of alcohol sales or cigarette sales but still they are significant. And more importantly the canna sector is still relatively new and there are still opportunities. For example, we don’t yet have the Coke vs Pepsi battle royale for the world’s favourite bud.
Perhaps the delay in seeing canna mega companies throwing vast sums of money on marketing and celebrity endorsements has been caused by a funding shortage. In the USA federal law still views all uses of cannabis as illegal and as such prevents American canna-business from accessing banking services. Even dispensaries have had their accounts closed. If you are a legal producer of cannabis where do you put your money? How do you access loans and other funding options? The answer has largely been Canada.
There are, however, a few brave pioneers in the US who have opened up financial services for growers, retailers and equipment suppliers for the canna industry. One notable example is Canna Business Resources based in New York.
Canna Business and Factoring
Canna Business Resources offer financing solutions to licensed operators and ancillary companies worth from $15,000 to $15 million. They will make funds available within 48 hours of approval.
As with a bank or other financial institution, Canna Business Resources offers a range of funding options: uncollateralised loans, equipment finance, real estate financing and invoice finance.
Supply chain finance (also referred to as reverse factoring) is a funding model particularly applicable to the legal marijuana industry. While many dispensaries will grow their own product, they invariably rely on complex supply chains for other strains of weed to stock as well as for lights, hydroponic equipment, plant feed as well as paraphernalia such as papers, bongs, chillums, vapes and THC products such as edibles and vape mixtures. Not to mention all those Bob Marley style merch opportunities.
What this means is that many companies will become involved in the supply chain that eventually leads to a small shop in a mall lined with bell jars full of sticky bud. The issue for many of these SMEs in the canna business is that they struggle to pay suppliers until they have made enough sales. Canna Business Resources allows buyers to apply for pre-payment on invoices of up to $15 million. Details about what percentage of an invoice can be offered in a pre-payment and fees are available by using the factoring calculator on their website. The company requires an invoice, a letter of intent (from the buyer) and a contract. This is reverse factoring.
Alternatively, the seller in the supply chain can apply for early payment in the same way. This is invoice factoring or accounts receivable financing. This is a major boost to the fledgling sector. As long as the various companies in the cannabis supply chain have unfettered access to banking services the potential is there for a rapid growth in the sector.
Although it is impossible to know with certainty how much the canna sector will eventually be worth (due to its only recent emergence from the black market), it must be a market with a huge appetite as cannabis has remained a favourite ware to stock by illegal dealers – police busts invariably uncover weed in hauls of drugs intended for retailing.
Summary
The most famous quote from the alternative comic, the Fabulous Furry Freak Brothers is that ‘Dope will get you through times of no money better than money will get you through times of no dope’. That might have been true for the end user, but if the canna business sector today wants to scale up to meet potential demand for medical and recreational marijuana then money is clearly the prerequisite needed to create supply chain finance able to keep bud stocks up. No money no dope, or less dope.
While the US and Mexico markets remain a huge source of potential revenue and clearly attractive to investors, it is less certain whether Georgia, Uruguay, Malta, South Africa, Canada and Thailand represent the same opportunities. In Thailand and South Africa, the climate is such that outdoor farming is feasible and little seed money is needed to get an industrial-scale crop going. A complex of local farmers and dealers have traditionally been able to meet demand without modern banking and financing. How quickly we see accountants and business professionals move into this space is unclear. Moreover, organised criminal syndicates will be acutely aware of any threat to their revenue streams. It is unlikely that weed cartels will be able to openly access banking services needed to run an effective canna business powered by invoice finance.
