MyCannabisAccountant's Monthly Accounting Advice - January

Raising Cannabis Capital: What Cannabis Industry Entrepreneurs Need to Know

Companies in the cannabis industry do not always grow as fast as weeds (sorry, pun intended) — unless entrepreneurs raise adequate capital to execute their business plans. Without the underwriting to fund the product development stage, knowledgeable team members, and the work needed to get a product to market, your chances to succeed are not very strong.

In many ways, a cannabis business is no different than a business in any other industry. Investors are looking for the same strong business plans, specialized knowledge, in-depth understanding of the market, other important factors and processes that are the makings of any solid company.

Up-to-Date Financials

You may have a fantastic story ready to share about why your team is uniquely prepared to run your cannabis operation, but first, your numbers must add up.

You need to be able to show up-to-date financials, including your equity and debt ratios. You will need to show exactly how much money is necessary to achieve your specific goals, and show by the numbers that you can run your business for years. And of course, if your business is in the plant-touching category, do not forget to account for IRS Code 280e in your final net income and cash flow calculations.

A Strong Business Plan

A business plan is a lot more than just a name and an idea. You will need to clearly communicate the details and demands of running your entire cannabis operation in an easy-to-digest document.

As part of the plan, you will need to show your sales and marketing budget. Demonstrate how much you anticipate it will cost to acquire your customers and the exact methods that will be deployed to make it happen. Investors will be checking to see if your plans are realistic and if you have the necessary capital to make them work.

Proof of Performance

Investors are also looking for what is known as your value proposition. You need to show what makes your company first, better, or different in some way. But that is not all — you must also demonstrate your ability to perform as expected.

You need to show the previous success of your team so that venture capitalists can see that you are able to do what you say you’ll do — when you say you’ll do it.

The Bottom Line:

Numbers Matter Before you meet with potential investors, make sure your financials are in order by working with a professional accountant. Numbers matter when it comes to raising capital, especially in the cannabis industry, as a small mistake in your books that is discovered during the due diligence process could cost you the entire opportunity with a potential investor.