Our world has been changing rapidly of late as the global pandemic caused by the coronavirus tracks across the globe.   A fast-changing world brings rapidly changing market conditions along with it, which produces both unique challenges and unique opportunities for businesses.

These dynamics are intensified in a nascent industry like the rapidly growing, legal cannabis market.   For example, retail dispensaries in the legal cannabis market, taking a cue from restaurants, are quickly rolling out curbside pickup options or delivery services to adapt to changing consumer behavior.  Some are even installing delivery windows like you might find at a bank branch or pharmacy.  Designing and implementing new initiatives is often capital intensive for businesses during a time when cash is dear and outside capital is suddenly scarce. 

Changing consumer and supplier behaviors will motivate many types of businesses to accumulate capital reserves that can help weather periods of uncertainty, while others may see an opportunity to cut costs and adapt.  During periods of uncertainty and change, traditional forms of financing, such as lines of credit or commercial mortgages, may be unavailable to borrowers or take too long to originate. 

Business owners seeking to shore up their reserves or invest in creative growth initiatives may consider alternative capital source, including:  

 Factoring

Factoring is a great option for businesses that sell goods or services to other businesses, such as cultivators, processors, and testing labs.  In this type of financing, businesses raise funds by selling their accounts receivable to a factoring finance company or alternative lender.  In these transactions, business owners receive funds today at a discount to their future value.  The purchaser of a company’s receivables typically takes on the responsibility for monitoring and collecting amounts owed by the company’s customers.  This is especially beneficial for businesses with a longer cash conversion cycle.

 Purchase Order Financing

For young companies, fulfilling incrementally large purchase orders from clients can be highly capital intensive.  Purchase order financing provides an avenue for businesses to finance the purchase of critical supplies to fulfill and satisfy large client orders on time.

 Merchant Cash Advance

Alternative finance companies also offer businesses capital through the purchase of a portion of their future sales often over a short time period.  While more expensive than more traditional financing options, merchant cash advance offers owners growth or reserve capital quickly to meet a short-term need.

 Whether seeking to increase capital reserves or adapting to change, companies in the legal cannabis industry facing uncertainty should evaluate all financing options, including the non-traditional.  Factoring, PO Financing, and Merchant Cash Advances may also be of use to businesses that are facing significant interruptions due to COVID-19. 

While some ancillary cannabis businesses may qualify for low cost disaster relief loans and other programs through the SBA, plant-touching businesses cannot qualify for these, despite the fact that they have been declared essential in many states during periods of shutdown.  Essential status notwithstanding, it will take federal government action to legalize cannabis before these programs are available in the industry.  Until that happens, alternative and nontraditional lenders are stepping in to fill the gap.  

Contact Abaca’s lending team today to learn more.