Adam Stettner, founder and CEO of cannabis lender FundCanna talks to Cannabis Wealth about the lack of funding in the cannabis space and what makes a canna-business viable for lending.
Given its legal status, access to capital has historically been a challenge for cannabis companies and in many instances, there continues to be a rift, especially for small-medium sized companies looking to scale up and expand.
In America, the cannabis industry remains federally illegal but 39 states have legalised the drug to some degree. Each region has its own regulations and licence requirements leading to a fragmented industry lacking federal support and even less financial access for cannabis operators.
“This results in cannabis operators, particularly small and midsize cannabis businesses, being underserved and under-banked,” Adam Stettner of FundCanna told Cannabis Wealth.
“Often where there is access there are onerous terms, lack of flexibility and an inability to renew or draw down as needed. Too often, fixed terms do not mirror the business needs. Many of the funding options [require] hard collateral like real estate or are inflexible.”
The landscape is improving as access to funding continues to grow for smaller cannabis companies but there is still a huge void to fill. FundCanna has focused its efforts on helping SMEs reach the next level in their growth strategy with flexible debt financing.
Stettner describes equity as the “most expensive capital a business can bring on”. While some companies may seek to avoid adding debt, Stettner believes it is a valuable accelerant for smaller businesses.
“While we have been conditioned to believe that debt is bad, this could not be further from the truth.
“One thing I have consistently seen over my career is that debt, when used properly, is an accelerant of growth and success. If a business can borrow money and use that money to make more than the cost of that capital, it is a win-win for the operator.
“[Equity] takes a portion of your company that you never get back. Debt fuels your growth and once paid off, it completely goes away. Once you raise equity, you never recoup the ownership.”
Stettner has spent over thirty years in the financial services industry, leading companies that funded approximately $20 billion in deals. In late 2021, he launched FundCanna with $30 million in available debt funding to provide access to flexible renewable capital and to service the underserved cannabis community.
“I’ve personally spent the last 15-20 years working with underbanked companies and based on my experience, debt capital serves as an accelerant for growth for these small to midsize businesses,” Stettner said.
“It is crucial that the entire chain of any industry has all its verticals supported. The pattern in the industry is often that smaller companies purchase/supply slightly larger companies and so on. In an industry like cannabis, I believe the system is interconnected regardless of the size of the company – they all need support. Companies all rely on each other and they need to be supported by companies like FundCanna. All sized companies are necessary and they are all worthy of access to banking and capital; the kind of financial support that is available to larger companies.”
FundCanna supports companies that are beyond the start-up phase but small enough to be considered an SME. A common issue for businesses of this size across the industry is funding materials and services months before the spend translates into revenue.
The San Diego-based lender seeks to close this gap by providing access to capital either by directly providing capital to the company or by paying vendors on their behalf to extend the timeline for payment. This was previously not available in the industry and has proved valuable for helping smaller businesses smooth out their cash flow and drive revenue.
“The most basic requirements for viability are valid licensing/compliance, minimum of 3 months’ time in business and at least $150k in annual revenue,” Stettner said. “The majority of companies we work with are well-established and have significantly more revenue, but these are just the minimum viability requirements.
“I believe in cannabis, both from a recreational and medical standpoint, it’s a phenomenal product with terrific business operators and I’m thrilled to be a part of this industry.”