You Got Your Cannabis Business License, Now You Need to Raise Money...

You Got Your Cannabis Business License, Now You Need to Raise Money...
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The Good News

 Congratulations!

You now have your license as a state authorized Cannabis Business. That’s huge-- and exciting--a significant achievement.

But time to put down the champagne. Because what you do next is crucial. And it literally will predict success or failure.

Here are a few of the major challenges to be prepared for, and tips on how to overcome them.

Luck Is Preparation Meeting Opportunity

We can’t emphasize this enough.

A strong Business Plan attracts the best private equity investors. And they’ll give your plan the same kind of scrutiny they give to large startups in other more traditional businesses.

And here’s where the capital advisory services can be indispensable.

The right service knows the criteria of a specific Investor/Investment Group as well as how to navigate the quest for capital. Experience plays a key role here. You want a service that has the expertise and knowledge of how to vet the best opportunities before serving them up to investors.

Investor Criteria can vary dramatically.  Invariably, though, three key areas emerge: Management, Assets, and Plan.

How to Manage Your Management

The expertise you bring to your company is vital. You need to do everything you can to inspire confidence in your investors.

Who the principals are and what they have accomplished will be carefully considered.  It’s the only means an investor has of determining the personality of your organization.  Who you are and what you’ve accomplished also tells an investor how you’re likely to handle day-to-day business challenges.

 

So, the bios of you and your management team are important.  Investors want to mitigate risk  by putting their money behind a management team that understands its stakeholder duties.

If you have legal cannabis/marijuana experience, great.  If not, take the time to make sure your bios (keep them concise!) substantiate your accomplishments in your fields of expertise – all the while showing how that expertise is compatible with the objectives of your Business Plan.  However, if you’re concerned about the strength of your management team, we recommend assembling an Advisory Board that can provide the credibility and expertise your business requires.  A good Capital Advisory Service knows how to put that together.

An Advisory Board is made up of a group of professionals who have various disciplines and expertise that serve to strengthen a company, and help meet its objectives to accelerate growth. Members are selected based on needed skills or to staff key positions in a young organization.

A diverse and helpful Advisory Board can be a great business tool. It demonstrates that the management team is adept at attracting influential people to make your business successful.

Potential candidates include recognized specialists in Medicine, Science, Marketing, Legal, Finance, Compliance and HR as well as Successful Entrepreneurs with a depth of knowledge of Operations, Strategic Partnerships, Fundraising and Exit Strategies.

But, before you establish a board, you need to clearly define expectations, especially the level of involvement and compensation.  A Board Member would typically expect reasonable compensation for expenses related to periodic board meetings and private sessions.  Beyond that, some form of compensation is appropriate in the form of stock options. That percentage is usually around 1-2%.

Cover Your Assets

You’ll need to have the right assets in place.

That informs investors how to determine a valuation of your company, both today and into the future.

If you’re already generating revenue, great.  But what other assets does the company own or have ready access to, such as real estate valuations (ownership/lease holdings) and equipment?

Well, you can chalk up one “asset” immediately - your state license!!

Ah, but before you count your money, you have to realize the crucial role real estate plays in establishing the value of your license.

As a part of your State Licensing Requirements, you had to establish a P for your building and business before your license could be issued.  You also had to answer questions about how much ownership and control you have over the use of that property.  Another factor investors will consider: is your business’ relationship with real estate productive or does it detract from the resources required for facility build-out and operations?

In the final analysis, the value of your marijuana license combined with the ownership of specific assets -- predicted profitability in your ProFormas and ability to control costs--- will directly affect your ability to maximize your value to investors. (Yes, it always comes down to money!)

Planning is Everything 

That brings us to the Viability of your Business Plan.

It’s likely that the plan you submitted to your state dealt primarily with how you would handle the operational issues required under the license you sought.  Now you have to approach a much different audience: the financial community.

What do knowledgeable investors want? Frankly, they’ll only help you if they believe you can accomplish the goals of a very specific Business Plan.  They’re looking for the traction and scalability your business can manage relative to their own investment objectives. 

We all know the standard categories a business plan must cover, but when structuring a plan for investors, here are key questions:

*What makes you different/better than your competition?  

* Who is your customer base?

* How are you building the strongest brand in the marketplace?

* What protectable IP do you have or are you developing?

*What are the assumptions behind your growth projections and your valuation?

* What do you need in order to achieve these projections?

* How will the investor benefit from their relationship with you?

*Does the benefit you’re offering align with their specific investment criteria and ROI objectives?

 

Your differentiation is absolutely critical. Investors get hundreds of financing appeals daily. How do you stand out?

Capital advisory services can help identify these unique qualities that make your business more appealing.   And, as for your projections and valuation, don’t forget that as the cannabis investment marketplace accelerates, seasoned investors know just what to look for.

So, your ProForma Financials, Marketing Plan, Investor Presentation, and Corporate Structuring must be absolutely defensible in order to justify the structure of your deal – the investment you are seeking, the use of the invested funds, and the terms you will be offering an investor.

The Cannabis Industry is a juggernaut, maturing at a wildly quick pace. In fact, larger and more traditional institutional investors are building cannabis portfolios.

And your company should be one of them!

You need sound advice from seasoned professionals in order for your company to make it through the capital raise process efficiently and quickly.

Are you ready?

 

About the Author

David Hofer is the Managing Partner of Highway Capital Advisory Services. Their team consists of former Private Equity and turn-around experts has helped design Vertically-Integrated Cannabis Operations, cGMP standard manufacturing facilities, world-class retail operations, structured and led Capital Raises, joint ventures and Mergers and Acquisitions for both plant and non-plant touching cannabis and HEMP/CBD licensed operators.  

Highway, with offices in Miami, Denver, Detroit and San Francisco, they have guided

mid-market Cannabis Companies through capital transactions with their direct network of over 350 High Net Worth Investors, Family Offices, Private Equity and Venture Capital Firms, Multi-State Operators and Public Canadian Cannabis Companies.

Differentiate, capitalize and grow your business today with the Highway Capital Advisory Team.

Contact David at dhof@highwaywon.com

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