Over the past couple of years, the cannabis industry has burgeoned in the wake of the expanding legalization and a growing abundance of capital from venture capital firms and other investors. While the majority of the states have legalized medical use of cannabis, Maryland and Missouri became the latest states to legalize recreational use of the plant as of November 2022. With that, a total of 39 states along with Washington, D.C. has legalized medical use of cannabis with 21 states legally approving the plant for recreational use.
But despite these progressive changes, the cannabis industry still has a long way to go before it is on par with other substances that are used for recreational or medical purposes. As a result, cannabis business owners face unique challenges that hinder their growth and operation. These challenges include:
Accessing Capital From Banks
The legal status of cannabis as a recreation or medicinal substance is variedly distributed across the states, but the federal government maintains its status as a schedule 1 narcotic. Due to this federal illegality, Congress has yet to lift banking restrictions on cannabis businesses. This has made it extremely difficult for cannabis companies to obtain capital from traditional means of financing. As a result, numerous businesses in the industry have failed to seize opportunities for growth and expansion limited by their financial resources.
However, many proprietors have turned to private lenders that offer marijuana business financial services for capital. Some of these lenders such as Rainbow Realty Group underwrite real estate properties of cannabis companies for marijuana real estate loans in the USA. The involvement of private lenders has been immense help for many real cannabis businesses.
Operating In an Ever Changing Landscape
Even in states where cannabis is legal either as a recreational or medicinal substance, laws vary from one state to another regarding the use, distribution, and growth of the plant. Compounded with the complex and changing legal status of the plant, cannabis businesses have had to operate in an ever changing financial and taxation landscape. This makes it difficult for cannabis companies to make strategic business moves such as opening new dispensaries or outlets when navigating the legal landscape can be very complex and risky. Cannabis companies currently face more risk related to legal liabilities than other enterprises operating in different industries and this has been a setback for many.
Rising Interest Rates
Due to the precarious legal status of cannabis, the few private lenders offering marijuana business funding in the USA still consider cannabis businesses as high-risk lenders. To compensate for their risk, lenders have to offer loans at high interest rates. While the ability to access capital from these lenders is still a benefit for cannabis companies, their high interest rates have made it difficult to make profit compared to other commodities.
Though the cannabis industry is growing and its use is becoming more accepted in society, it faces major challenges. These trends also will create a volatile and fast-changing environment both for investors and cannabis companies in 2023. For investors, the big challenge will be deciding which of the scores of startups, IPOs, and established cannabis companies can surmount the upheaval and succeed long term.
If you’re looking for a lender that provides marijuana business financial services, Rainbow Realty Group can provide you with the right support. Get in touch with us and we’ll help your take your business to the next level.