High Times recently did an article setting forth the basics of what you as a cannabis business owner should do to position yourself to receive outside investment funding. The article is entitled, Five Tips for Selling Your Cannabusiness to Investors, and it starts out discussing how there are plenty of “shrewd investors….not afraid to get in on the ground floor of legal marijuana.” The article then lists out five tips for securing such investment.
What is so striking about the article’s tips is that none of them are particularly striking. In other words, the five tips apply equally to any business seeking outside investment, cannabis or otherwise. All five tips make good sense and they all prove one central point: aside from federal prohibition, cannabis businesses are — at their core–not all that different from any other business.
But investing in a cannabis business does implicate a whole host of complicated regulatory, compliance, and operational issues unique to the marijuana industry. Just by way of a few examples, cannabis businesses face unique intellectual property, real property, taxation, and employment challenges that can and regularly do impact decisions on how and whether to invest in or buy a cannabis business.
Without any further ado, here are the article’s five tips — all good — for securing outside investment in your cannabis business:
1. Make Sure You Are Prepared. Prepare a comprehensive business plan and provide that to your potential investors. This plan should include an assessment of the marketplace, your projected costs, risks and financial projections for at least the next first five years. You need to be able to show potential investors what you will do with their funding and how that funding will help your cannabis business grow. Having an experienced cannabis business attorney in place before you seek funding is also advised:
It is important to establish a relationship with an attorney to make sure all of the legal issues regarding your venture are ironed out beforehand. Investors are more likely to take your presentation seriously if they feel you have a handle on the legal climate of your business, as well as a grip on how investment deals are made.
For more about what to expect regarding cannabis business investment contracts, see Marijuana Business Investments: Not Simple.
2. Track Records Are Important. Investors want to invest in a cannabis business with a proven track record, not in an “idea.” Investors also want to see a business whose owners “have already made a significant investment of their own – be it sweat equity, financial, or both.”
3. Honesty Is the Best Policy. “Investors are professionals and can smell bullshit from miles away, so do not cheapen your presentation with smooth talk. Not many investors will put their money into a business without doing some homework of their own. The last thing you want them to discover is that they cannot trust you.”
4. Keep It Simple, Stupid. Make your investment proposal short. Say around five minutes, with the rest of the meeting reserved for addressing investor questions and concerns.
5. Know What You Want and Do Not Falter. Have a clear understanding of what you want from outside investment and do not deviate from that plan.