When it comes to the challenges that the CBD and cannabis industry are facing related to the regulatory environment and federal guidelines, business loans for cannabis companies are turning into a touchy subject.
Even cannabis business loans in a state like Colorado that has already legalized cannabis on the state side can’t get the much needed financing that they desire from banks and credit unions because the FDA has ruled loans for anything related to a cannabis business as being considered money laundering.
Let’s take a look at six reasons why you would get denied for a cannabis business loan.
Factors to Consider
Aside from banks and credit unions not dealing with cannabis companies, if you are looking to start a CBD business, you should be aware of other issues. Getting your hands-on affordable insurance for a CBD business remains a pricy ordeal.
Also, payment processors present high fees and other challenges to CBD businesses because of the federal decisions that cannabis sales are illegal from their standpoint, regardless if they may be legalized in many states. Regulations are constantly changing, and entrepreneurs in the cannabis and CBD industry must pay constant attention to be able to adapt.
Not Having the Right Licenses
The first major problem that CBD business owners will run into that will get them denied if they need funding is not having the correct licenses in order to participate in the cannabis industry. Colorado offers six different types of licenses for retail marijuana businesses through the Colorado State Licensing Authority:
- Retail marijuana store
- Retail marijuana cultivation
- Retail marijuana product manufacturer
- Retail marijuana testing facility
- Retail marijuana transporter
- Retail marijuana operator
What is required to become licensed? You must be 21 years of age or older and you must have lived in the state of Colorado for at least two years before you even applied for the license. The same goes for any financial partners or employees associated with your business.
Be sure that no one connected with your business has any convictions for controlled substances on their record within the past ten years. It is preferred that all direct associates of the business have spotless criminal records.
Obtaining a new license will cost $4,000 to obtain and that doesn’t include additional state and local fees. Make sure to check the local regulations on cannabis will allow you to sell your products there. Counties in Colorado have the right to opt-out of legalization, even to the extent of not allowing the growth, sale, and use of cannabis at all.
Licenses will fall flat for any businesses that cannot prove that they know exactly how to comply with local and state regulations. Be sure to have a well-rounded team in place that includes of business managers, financial personnel, and horticulturists, to become a clear candidate for a cannabis business loan.
In order to apply for a cannabis business loan, the last five factors that can possibly get you turned down for a cannabis business loan are:
- Not meeting any credit score requirements.
- Not meeting any minimum age and residency requirements.
- Not having a business bank account.
- Not meeting a minimum gross monthly income if your business is already operating.
- Having a criminal record and being able to pass a background check.
Now that you know what not to do, or what not to have done in the past, in order to get a cannabis business loan in Colorado, go out there and take. It is all up to you now to get your business plan in order and contact reliable commercial lenders outside of standard banks and credit unions to get the ball rolling for financing.