Financial Challenges Your Cannabis Business Faces
The cannabis industry comes with its own set of specific financial challenges that business owners face regularly. From securing funding to staying compliant, these hurdles can be tough to navigate compared to traditional, more established industries.
Karen Osovsky, a three-time business founder (Osovsky Cannabis Consulting, Farmers First Wholesale, and Next Generation Nurseries) emphasizes that recognizing and planning for these obstacles can make all the difference.
Banking Services
Banking options for cannabis businesses have expanded, but they often come with higher fees. Despite societal and cultural advancements around cannabis in recent years, many banks remain hesitant to work with cannabis companies and might ask for extra guarantees to reduce their risks.
“Banking commitments are more available now than they were several years ago, but you will pay a premium because of the nature of this business,” Karen explained. Choosing the right financial partner means researching them thoroughly, comparing costs, and learning from the experiences of other cannabis professionals where you can. “Additionally, cannabis banks usually require detailed quarterly financial reports as well as Metrc data to cross-reference the movement of cannabis products and payments. This level of documentation can be overwhelming without solid bookkeeping,” Karen added.
Access to Funding
Raising capital in the cannabis industry is tricky. Cannabis business owners often have fewer choices than other types of businesses. While there may be opportunities to find outside investments, personal or family funding is usually the first port of call.
“For my first business venture, we got funding from friends and family initially. That’s a suitable solution many new business owners use, but you should have clearly defined contracts in place,” Karen advised. “You want everyone to be on the same page about expectations, and you certainly don’t want to do bad business with the people you love the most.”
While friends and family may offer more flexible terms, it can put a strain on relationships. On the other hand, outside investors can bring significant funding but often demand equity and impose strict oversight.
Robust Financial Planning
Karen highlighted the necessity of having a solid financial plan.
“When I founded my first business, Next Gen, we didn’t have a clear understanding of our monthly overhead or actual costs, and that made it difficult to assess how much we needed to sell to be profitable,” she explained. “It was a quick learning curve to get our finances in order and to a place where we felt we had a holistic overview of the entire business. Financial projections, expenses, profit and loss statements—these aren’t just pieces of paperwork. They’re essential for making informed decisions.”
For cannabis companies, maintaining accurate and up-to-date financial records is even more critical when working with banks. Poor recordkeeping can lead to compliance issues, hefty fines, or even losing access to banking services completely.
Tailored Solutions for Your Business
Karen stressed that there’s no one-size-fits-all solution when it comes to cannabis finances.
“Every cannabis company is unique. Every state’s requirements are unique. My advice is that you first need to understand your revenue potential, your overhead, and how much funding you actually need. Then you can decide who to source the funding from,” she said.
“I am, of course, biased as a cannabis consultant, but I do feel it’s beneficial to seek expert advice when forming your business plan. I wish I had sought help when I first started out. Our approach was to learn by doing, and now I share those insights with my clients,” Karen added.
Working with experienced financial consultants like those at OCC can help cannabis businesses build realistic projections, maintain compliance requirements, and make informed funding decisions. Due to the hyper-personalized nature of cannabis funding, it pays to invest in expertise early on.
Final Thoughts
Navigating the financial landscape of the cannabis industry isn’t easy, but careful planning and support can make a significant difference. From choosing the right banking partner to securing the best funding options and keeping compliant through diligent bookkeeping, preparation is key.
Karen’s advice is simple but powerful: “Be realistic about your timeline for profitability, understand your numbers down to the penny, and seek expert guidance when necessary. The challenges are significant, but with determination and the right strategy, they’re all surmountable. Especially if you work with the right partners.”