83% of Existing Medical Marijuana Businesses Were Funded by Founders’ Own Wallets

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By Anne Holland   As new-to-dispensaries states such as Massachusetts and Connecticut propose requiring dispensary founders to fund huge escrow accounts ($500k for MA and $2 million for CT), in addition to costly licensing fees, the financial face of the industry may begin to change profoundly.  As you can see from the Marijuana Business Factbook’s exclusive survey data of existing cannabis-related businesses, a full 83% were launched using the founders’ own savings and personal debt.

On average, MMJ business entrepreneurs tend to be in their 30s, 40s and 50s, so they’ve had enough time to build up some personal savings to start a business — but they may also have mortgages to pay off, children to put through school, and retirement to save for.  The odds of being able to raise $500,000-$2,000,000 for escrow, plus licensing fee and operational costs, through personal savings alone are slim for most.

Banks and the Small Business Administration will not lend money to medical marijuana start-ups.  Although some crowdfunding sites such as Crowdrise.com and Gofundme.com have carried listings to raise money for dispensary start-ups, it can be difficult to raise more than $1,000-$2,000 this way.  A handful of angel investing and private equity groups have emerged, such as The ArcView Group and Privateer Holdings but to MMJ Business Daily’s knowledge, they only fund ancillary businesses (i.e., a business related to MMJ which does not cultivate, process, or sell cannabis.)  Lastly, there are no foundations giving grants to dispensaries or cultivators, even if they are operating as non-profits serving the medical needs of a community.

CT and MA’s onerous financial requirements for dispensaries and cultivators may be one reason why, unlike CO, both states have not at this time set a residency requirement for financial backers or all staff and executives. In fact, by including previous MMJ experience as a licensing consideration factor, both states seem to be actively encouraging  cash-rich owners of marijuana businesses in other states to enter.

With these factors, combined with heavy competition for market share in states such as CO and CA, the age of mainly self-funded, local mom-and-pop businesses may be slowly drawing to a close in the cannabis industry.

Click here to get your copy of the entire 180-page Marijuana Business Factbook 2013, packed with exclusive financial, legal and market research data for cannabis professionals.