Certainly, producing more product in an industry projected to be upwards of $30 billion in just a few years’ time seems like a gamble worth taking. However, that is not always the case. The state and federal regulations regarding the cannabis industry have at times presented those involved with moving goal posts, so to speak, to remain in compliance with said regulations. Sadly, we have seen many cannabis business owners take this leap and attempt to double production, by, for example, financing additional equipment to assist with processing more product, only to not have secured retail buyers in advance, and their product ends up molding before they can sell it. Depending on the company’s financial position, this can cause a major setback, or even take the company down completely. Constant changes in Regulation although there are more states in the union that have legalized cannabis in one sense or another than states that have not, for the sake of brevity, this section is going to focus on the state of California. As of January 2019, according to cannabis.ca.gov, there are three authorities that have access to change regulations regarding the cannabis industry. They are the Bureau of Cannabis Control, California Department of Food and Agriculture-Cannabis Regulations, and California Department of Public Health Cannabis Regulations. Owners and investors of cannabis companies must constantly pay attention to the changes that result from this type of regulations, and be aware of what may come, because these regulations often result in additional money out of pocket to remain in compliance. Other times, these regulations may inhibit growth, or at least delay it. Such examples may be that any new ownership to a cannabis business must also apply and be approved for a commercial cannabis license, new zoning requirements on a city or county level that
Zena Financial Services, LLC is a licensed commercial financier based out of Chula Vista, California. We assist different types of industries to expand their sales though equipment financing and business loans.We like to take a consultative approach with our borrower and listen to their personal stories about their history, the state of the current operations, and their future ambitions and goals for their companies. The ensuing article is based off our experiences in commercial lending in the cannabis industry since it began to boom in 2017 and is by no means representative of all business situations. Please contact your tax and finance professionals should you have any questions regarding your own situation.