How To Approach Marijuana Investors
How Do You Find Weed Investors for Your Cannabis Project? from CannabisNet on Vimeo.
Marijuana laws can change overnight in many states around the country after the elections. This is a great time for cannabusinesses to brush up on their knowledge about what they need to know before they approach investors.
More people will be looking to cash in from the green pie and if you’re smart about it, you might just be one of them. There has been a recent dramatic influx in cannabis investment, and the legal marijuana market is expected to see $7.1 billion in profits this year. Hundreds of millions of dollars will continue to pour into cannabusinesses despite the fact that banking issues haven’t been addressed yet.
Marijuana businesses need to be prepared before they approach investors. But when it comes to actually approaching them, there’s no wrong or right way to do so: these days investors welcome all opportunities that are sent to them via email, in conferences, or over the phone as long as the right information is presented to them.
These are the things you need to know before approaching investors:
Be transparent about all the information surrounding your business, and have the information to back it up. Investors want a share of companies when it’s sold at a low price, or they won’t buy at all. Just like in other industries, marijuana businesses will have their share of weaknesses and it’s important that you divulge them. Acknowledging what your weak points are will help you more effectively create a plan to resolve these issues and obtain the resources when needed. Never try to answer questions if you really don’t know what the answer is – it’s always in your best interest to be honest and transparent otherwise this could mean facing legal implications later on.
When it comes to documentation, don’t approach investors until you’ve gotten everything ready into an organized, easy-to-understand pitch deck. Have it proofed and vetted, and read it twice or even thrice. The pitch deck should be prepared professionally and should also include a high level term sheet, risk factors, and disclaimers.
Be knowledgeable about the law and everything to do with marijuana businesses. Remember that marijuana businesses are regulated and cannabusinesses are classified into fixed types of licenses. What this means for you is that it’s doubtful that your business idea is one-of-a-kind, unless you’re an ancillary service provider or vendor. But despite this you still have to learn how to distinguish your unique selling point and what sets you apart from other similar businesses. If the investor you’re speaking with asks what sets your subscription box service apart from the rest, be ready with a good answer.
Always keep your priority in focus: selling or producing pot. As a marijuana business owner, for you this means that the more capital you’re able to raise, the less control you’ll have because your ownership will become more diluted. Even if you’re working hard with fundraising, make sure that you keep your eyes on the sales because raising capital can prove to be a serious distraction to the detriment of your business if you aren’t careful.
Do your homework about politics, laws, and how this can affect margins. Invest time in really getting to know the nitty gritty of the industry as well to have a better idea of where it’s headed. Things like tax regulations will have an impact on returns. For example in Washington state, businesses that were focused on cultivating marijuana suffered from the high taxes although the regulations have changed and these businesses are now much more lucrative than ever before although they did have a tough start to contend with.
If your business touches the plant, make sure that energy efficiency is mentioned in your pitch deck. High energy costs will make expenses challenging to manage especially when trying to keep margins up. Investors know that sustainability and energy efficiency are good business practices especially when it comes to marijuana cultivation.
Be realistic, avoid making claims, and approaching investors with a “trust me” mentality. Investors simply don’t have time for that, but this doesn’t mean you shouldn’t believe in your vision. Just don’t be overly confident to the point that you will decline coaching from others who are more experienced in your field. Investors want to know that your business has a flexible leadership that is open to creative ideas even from external parties.
If you find good leads, be realistic but don’t forget the art of following up. It’s in the nature of investors to try and get better leverage in order to score better terms. However, be cautious to avoid being a nag. Follow best practices when following up with investors and send them updates about developments in your business; seemingly simple moves such as these can help you close a deal.
Once you’ve sent in everything that you’ve needed, be patient. Remember that financing deals will take some time to complete; there will be factors that will affect the timing such as what you’ve agreed on with the investor, what the financing structure is like, and how much money is involved. Some deals can be completed in just a few days while others can take weeks or months. Investors need time to evaluate each deal and plan accordingly.
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