Marijuana Business Factbook 2019

286 Marijuana Business Factbook 2019 Chapter 7 | Cannabis Business Funding & Investing © Copyright 2020, Marijuana Business Daily , a division of Anne Holland Ventures Inc. You may NOT copy this Factbook, or make public the data and facts contained herein, in part or in whole. For more copies or editorial permissions, contact CustomerService@MJBizDaily.com or call (720) 213-5992, ext. 1. CHART 7.12: Postlaunch Funding For Cannabis Businesses Source: 2019 Marijuana Business Factbook © 2019 Marijuana Business Daily, a division of Anne Holland Ventures Inc. All rights reserved. Postlaunch Funding For Cannabis Businesses 0% 20% 40% 60% 80% 100% Offered Equity 49% Took Loans & Offered Equity 31% Took Loans 20% No 63% Yes 37% Cannabis Businesses Using Outside Funding Sources Postlaunch: Equity Vs. Loan Breakdown Did Your Cannabis Business Seek Outside Funding Postlaunch? Two-thirds of cannabis businesses indicated they have not sought outside funding after launch. Some businesses noted that this was based on their profitability and expansion plans, while others may not seek funding because they are not attractive to outside investors. For example, a small cultivator making less than $250,000 per year would likely struggle to attract outside funding: Debt financing would carry a high risk, and equity investors would likely look for a larger business with more growth potential. Among businesses that have taken outside funding since launching, equity investments were offered more often than loans and loan-equity combinations. The proportion of companies offering equity increased 10 percentage points in the past year, landing at 49% in the current survey. The proportion of companies taking loans is down 14 percentage points, to 20%, while the proportion of companies taking loans and offering equity stayed steady at roughly one-third. Equity offers more profit potential to investors than loans, though equity investments provide some benefits to both sides. For businesses, an equity stake is more attractive than a loan as it aligns incentives between the business and the investor, giving both a material interest in the success of the company. Additionally, the business is free from the stress of making payments on a timeline and investors are better positioned to make a lucrative exit should the company undergo a liquidity event such as an acquisition or initial public offering.