How to Attract Cannabis Investors: Essential Tips for Securing Cannabis Funding

Securing funding for your cannabis business is no small task, especially in an industry still grappling with regulatory uncertainties and financial constraints. Despite its projected economic impact, the cannabis industry still struggles to raise capital. According to MJBizDaily, debt financing now makes up 93% of the capital raised by U.S. cultivation and retail companies, with equity financing dramatically declining. More companies are being forced to turn to high-interest debt, driven by rising interest rates and a lack of liquidity in equity markets. This shift has occurred as traditional venture capital firms struggle to secure their own returns, leaving cannabis businesses with fewer funding options.

Despite these hurdles, projections show the cannabis industry contributing over $115 billion to the U.S. economy in 2024, meaning there's ample opportunity for growth if the right funding can be secured. With new cannabis companies requiring between $250,000 and $2 million to cover the essentials like licensing, real estate, compliance, payroll, and initial inventory, entrepreneurs need to navigate these financial barriers creatively, exploring alternatives like equity crowdfunding and forming strategic partnerships to thrive in this competitive landscape.

In this environment, understanding the nuances of cannabis investment and building a resilient strategy is crucial. In the following sections, we’ll explore key strategies for attracting investors, crafting a compelling pitch, and navigating the competitive world of cannabis funding.

‍

What Are Cannabis Investors Looking For?

Investors in the cannabis space are looking for businesses that stand out with solid leadership, innovative approaches, and long-term growth potential. Scott Grossman, a seasoned investor with experience across various sectors, including cannabis, emphasizes the importance of the team in his investment decisions. Grossman states, “80% of the time, the success or failure of a business comes down to the team.”

So, what qualities should cannabis entrepreneurs demonstrate to attract investors?

‍

1. Experienced Leadership

Investors are most interested in businesses led by teams with relevant experience. This doesn't always mean you need to have launched a cannabis business before, but you must show that you have a deep understanding of your niche, such as running a retail operation or managing inventory systems. For example, having experience in retail, merchandising, or customer service management can demonstrate your ability to execute within a dispensary setting.

‍

2. A Compelling Story

One of the most important aspects of your pitch is your ability to sell the vision of your business. Investors want to know what unique value your business will bring to the cannabis industry. Whether you’re building a new cannabis brand or opening a dispensary, explaining how you plan to solve a problem within the industry can make your pitch more attractive. This could be anything from addressing inefficiencies in cannabis supply chains to creating a retail experience that stands out from competitors.
‍

‍

3. Proof of Concept

It’s easier to secure funds if you’ve already demonstrated the success of your business model on a small scale. If you're starting a cannabis brand, provide evidence that there is demand for your product in your target market. If you can show that your brand resonates with a particular demographic and has potential for growth, investors will be more willing to fund your expansion.

‍

4. Execution Over Ideas

As Grossman points out, “Ideas are cheap; execution is everything.” Investors want to see how you plan to turn your idea into reality. This means having a clear, detailed plan for how you will operate your business, attract customers, and scale over time. Make sure your business plan includes these elements to prove to investors that you know how to implement your vision effectively.

‍

How Can Entrepreneurs Craft Winning Cannabis Investment Strategies?

Crafting an investment strategy that appeals to cannabis investors means addressing both their concerns and expectations. The cannabis industry is unique due to regulatory complexities and market volatility, so a targeted strategy is essential.

‍

1. Start With a Solid Business Plan

Investors expect to see a comprehensive business plan that outlines your strategy for success. Some of the key components to include are:

‍

• Market Opportunity: Clearly define the size of the market you’re targeting and explain why your business is positioned to succeed.
  ‍
• Financial Projections: Provide realistic and detailed financial forecasts. Investors want to see your path to profitability.
  ‍
• Competitive Analysis: Demonstrate an understanding of your competition and how your business will stand out.

‍

2. Prove Your Understanding of the Market

The cannabis industry is still evolving, and regulatory changes happen frequently. Investors will want to know that you're up to date on the latest cannabis regulations and that you have a plan to navigate compliance challenges. Show them that you’ve done your homework by discussing specific laws and regulations that apply to your market.

‍

3. Highlight Scalability

Cannabis investors are often interested in businesses with the potential to scale. Whether you're launching a single dispensary or developing a cannabis brand, your business plan should highlight how you plan to grow. Include detailed steps on expanding into new markets, scaling your production, or increasing your product line.

‍

‍

4. Understand the Value of Milestones

Investors don’t just hand out large sums of money without milestones. Instead, Grossman advises raising enough to hit key milestones. This allows you to show progress, gain credibility, and secure additional rounds of funding more easily. For example, if you’re launching a cannabis dispensary, raise enough capital to cover your initial buildout and opening. Then, once you show growth and traction, raise additional funding for further expansion.

‍

5. Prepare for Rejection and Stay Resilient

According to Grossman, most deals never get funded — less than 1% of opportunities make it to the finish line. This means rejection is an inherent part of the process, and it’s vital to stay resilient. After each "no," entrepreneurs should refine their pitch, fix any issues pointed out by investors, and keep going. Grossman emphasizes that rejection can be a valuable learning tool, improving your chances of success in future meetings.

‍

How Do You Approach Investors for Cannabis Funding?

Once you have a well-prepared business plan and strategy, the next step is finding and approaching investors. Here's how to get started:

‍

1. Network at Industry Events

The cannabis industry is highly networked, and many investors can be found at industry trade shows and conferences. Events like MJBizCon, Benzinga Cannabis Capital Conference, and Champs Trade Shows attract top cannabis investors and provide opportunities to make connections. If you’re starting small, local events like the New York Grower’s Cup can also be great networking venues.

‍

2. Use Online Platforms

In addition to attending industry events, leveraging online platforms like LinkedIn and Twitter can help you find investors who are actively seeking cannabis opportunities. Grossman recommends Twitter as the top social network for cannabis executives and investors, making it a great place to build connections and engage with potential investors.

‍

3. Prepare a Strong Elevator Pitch

When you meet investors, your elevator pitch is crucial. Investors don’t have time to listen to long-winded stories; instead, focus on conveying the essence of your business in a clear, concise, and compelling manner. Your pitch should cover:

‍

• The problem your business solves
  ‍
• How you plan to solve it
  ‍
• Why your team is the right one to execute
  ‍
• The size of the market opportunity
  ‍
• What you're asking for in terms of funding

‍

‍

4. Leverage Your Network

Grossman emphasizes the importance of leveraging your network to get introductions to investors. Mutual connections can open doors to conversations and make your pitch stand out from the hundreds of others that investors receive. This personal introduction can make a significant difference in getting your foot in the door.

‍

How Much Funding Should You Raise?

Knowing how much funding to raise is a common challenge for cannabis entrepreneurs. Grossman advises raising enough to hit milestones that make it easier to secure further investment down the line. For example, if you’re launching a cannabis dispensary, aim to raise enough to cover the cost of the initial buildout and opening, which will allow you to demonstrate traction before seeking additional funding for expansion.

It’s important to strike a balance between raising too little and diluting your ownership too much. Many entrepreneurs mistakenly raise too little capital in an effort to retain control of their company, but this can result in financial shortfalls that prevent the business from reaching critical milestones.

‍

What Should You Look For in an Investor?

Just as investors scrutinize businesses, entrepreneurs should also assess their investors. Grossman emphasizes that alignment of values is critical, especially when problems arise. Entrepreneurs need investors who will stand by them and work collaboratively to find solutions during challenging times. It’s also important to discuss exit strategies early on to ensure you’re on the same page regarding the future of the business.

Asking the right questions early in the process, such as how much capital the investor manages, their appetite for follow-on investing, and what success looks like for them, will help determine if they are the right fit for your company.

‍

Conclusion

Securing funding in the cannabis industry may be challenging, but with the right approach, it’s possible to attract the right investors. Focus on building a solid team, creating a compelling story, and demonstrating proof of concept. Additionally, networking through industry events and leveraging online platforms will help you connect with potential investors who can help take your business to the next level.