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Polis Administration Announces: Cannabis Business Loan Program

Earlier this week, Gov. Polis and the Cannabis Business Office (CBO) within the Colorado Office of Economic Development & International Trade (OEDIT) announced the Cannabis Business Loan Program for social equity licensed cannabis businesses in Colorado. The CBO has partnered with mission-based lender NuProject to provide financing that is not otherwise available to cannabis businesses through traditional lenders.

“This landmark loan program will create and retain 239 good-paying jobs and promote equity in the cannabis industry by providing growing businesses access to funding,” Gov. Polis said. “I am committed to saving small businesses money and ensuring our state remains a great place to start and run a business in every industry. Thank you to NuProject for partnering with Colorado on this exciting milestone and working to support innovation in Colorado’s cannabis industry.”

READ: Native Roots Guest Commentary — Inclusivity in the Cannabis Industry

Traditional funding sources designated for small businesses often preclude the cannabis industry, causing cannabis business owners to experience increased difficulty accessing capital as they grow their businesses. To help fill this funding gap, the Cannabis Business Loan Program will provide loans between $50,000 and $150,000 for renovations or expansions, the purchase of equipment, real estate or use as working capital. Loans will have favorable and manageable terms based on borrower needs.

NuProject, which has a proven history of lending to cannabis businesses, specializes in mission-based and character-based lending. These practices help business owners obtain loans even if they have limited cash flow, lack the traditional assets necessary to secure financing or have experienced other challenges obtaining financing. NuProject also provides educational assistance and mentorship to assist business owners in preparing for loan applications.

“NuProject is committed to redirecting the typical flow of financing so that small business owners in the cannabis industry, especially those who’ve been historically excluded from access to capital, can access the resources they need to grow their businesses. When cannabis business owners have access to financial support and the know-how to put that funding to work, they can run better businesses and have the opportunity to build generational wealth through the cannabis industry,” said Jeannette Ward Horton, NuProject CEO.

NuProject and the CBO will manage the Cannabis Business Loan Program as a revolving loan fund. As loans are repaid, the interest generated will be reinvested into the fund to support future borrowers. The initial $1 million investment is expected to lend $2.9 million over the next 10 years, creating and retaining important jobs in Colorado.

“Colorado’s Cannabis Business Loan Program is at the forefront of the cannabis industry, creating a new model to help these small business owners access the resources they need to grow and thrive. Together with NuProject, the Cannabis Business Office is making it possible for cannabis businesses to grow, create new jobs and contribute to a Colorado economy that works for everyone,” said Eve Liberman, OEDIT Executive Director.

The Cannabis Business Loan Program announced this week is the third CBO funding source available for Colorado’s social equity licensed cannabis businesses. The Cannabis Business Grant, launched in 2021, provides $25,000 Foundational Grants to help early stage cannabis businesses with their startup needs and $50,000 Growth Grants to support existing cannabis businesses as they grow or refine their operations. The Cannabis Business Loan Program is designed to support larger, more established cannabis businesses as they continue to grow.

Recipients of Cannabis Business loans are required to be social equity licensed cannabis businesses that have been awarded a regulated business license from the Marijuana Enforcement Division. To be notified of future rounds of grant funding or developments related to the loan program, subscribe to the Cannabis Business Office newsletter.

 

About NuProject

NuProject works to build generational wealth and opportunity via the legal cannabis industry for the communities most harmed by cannabis criminalization. To that end, NuProject provides diverse-owned cannabis businesses with funding, coaching, and connections. Since founding in 2018, NuProject has delivered more than 1900 hours of coaching and funded $2.3M in loans and grants to historically underserved entrepreneurs. 100% of NuProject’s loans have been funded to socially and economically disadvantaged-owned businesses across five U.S. states and Canada. Culturally responsive and mission-driven, NuProject’s lending approach was designed for equitable funding. Visit www.nuproject.org for more information.

About Colorado Office of Economic Development and International Trade

The Colorado Office of Economic Development and International Trade (OEDIT) works with partners to create a positive business climate that encourages dynamic economic development and sustainable job growth. Under the leadership of Governor Jared Polis, we strive to advance the State’s economy through financial and technical assistance that fosters local and regional economic development activities throughout Colorado. OEDIT offers a host of programs and services tailored to support business development at every level including business retention services, business relocation services, and business funding and incentives. Our office includes the Global Business Development division; Colorado Tourism Office; Colorado Outdoor Recreation Industry Office; Colorado Creative Industries; Business Financing & Incentives division; the Colorado Small Business Development Network; Cannabis Business Office; Colorado Office of Film, TV & Media; the Minority Business Office; Employee Ownership Office; and Rural Opportunity Office. Learn more at oedit.colorado.gov.

Retailer launches CBD vending machines

Consumers can buy snacks, cosmetics and headphones from vending machines, so why not CBD? Loveland-based CBD retailer Plenty Wellness recently unveiled its automated retail channel for selling cannabidiol products, Plenty Wellness Express. The kiosk, which currently has one location at FlatIron Crossing shopping center in Broomfield, operates 24/7 and can be managed from anywhere with an internet connection.

“We foresaw the trend that traditional brick and mortar is not a long-term viable solution,” says Chris Cox, CEO of Plenty Wellness. “We had to find one that allowed us to actively compete in the retail space while reducing operational expenses and we really wanted to reach our customers where they already shop.”

Cox and CFO Dan Porter spent five years researching the vending and automated retail space to find the right hardware and software combination. They also worked on details such as machine placement, stocking and marketing. The kiosks are unstaffed, and shoppers order through a touchscreen.

The machines sell Plenty Wellness products as well as CBD products from other brands. While the COVID-19 pandemic and the resulting temporary mall closure dampened sales, the company is optimistic about growth. The business model includes finding investors to install Plenty Wellness Express units in high-traffic locations such as shopping centers and airports. For another revenue generator, the kiosks also have 55-inch digital marketing screens available for advertising.

Cox and his wife, Rachel, own the store in Loveland. They launched Plenty Pharma, now called Plenty Wellness, after Chris suffered injuries from a car accident and found that CBD could help with pain management. Chris Cox and Dan Porter also own Automate IQ, which makes the hardware and software for the kiosks.

CBD is booming. According to Boulder-based BDS Analytics, U.S. sales of cannabis- and hemp-derived CBD products is predicted to increase from $1.9 billion in 2018 to $20 billion by 2024, a compound annual growth rate of 49%.

In the next 12 months, Plenty Wellness plans to have Express automated retail kiosks in 300 gyms, grocery stores, malls and other locations. “We can go where other retailers cannot,” Porter says. “We see a future where every consumer in the USA can access high quality wellness products through our kiosks at multiple stops along their daily commute.”

A budding relationship between cannabis and real estate

Landlords have found a new best friend in cannabis.

Today, traditional brick-and-mortar retailers are navigating an unprecedented and potentially devastating one-two punch of COVID-19 and shifting consumer purchase behavior driven by the proliferation of e-commerce and new digital technology solutions. 

At the same time, cannabis, which was deemed an ‘essential’ business service in Colorado amidst statewide ‘safe-at-home’ and ‘safer-at-home’ orders, has showcased its strength and resilience.

Even as consumers practice social distancing and heed government restrictions, adult-use cannabis sales in Colorado have remained steady. The industry has retained existing and attracted new customers along the way, while other business sectors have struggled to adjust to a dramatic decrease in consumer foot traffic.

This isn’t to say there aren’t challenges ahead for hundreds of Colorado cannabis retail operators.  

Because cannabis is not legal at the federal level, companies that cultivate, manufacture and sell the substance were locked out of relief made possible through the government’s Paycheck Protection Program. Access to capital, even for loans tied to real estate, is another issue entirely.

Because traditional lenders and financial institutions are, by and large, restricted from doing business with cannabis companies, many operators are either forced to purchase real estate outright, including medical and recreational dispensary storefronts, or take on riskier loans with less favorable terms.

As a result, real estate tends to take up a larger portion of the balance sheet than a cannabis company might have planned for or even know how to effectively manage. 

For many operators, the prospect of taking on additional debt in the name of growth is the ultimate Catch-22.

One emerging practice, however, is rising to the fore in Colorado, offering cannabis companies the chance to swap their assets for operating capital while allowing savvy real estate investors the opportunity to invest in the high-growth cannabis industry without ever having to touch the plant. 

Sale-and-Leaseback Agreements: An Emerging Investment Opportunity

In today’s market, many investors see cannabis real estate as an opportunity to broaden their portfolios beyond traditional sectors. Others see cannabis real estate investing as a steady source of fixed income. Regardless of your camp, the cannabis industry is strong, with even more exciting growth prospects for the future.  

One such concept that’s gaining traction nationally is the sale-and-leaseback agreement. As the name indicates, a sale and leaseback occurs when an asset owner agrees to sell a property to an investor and, following the sale, leases the asset back from the new owner. Typically, these are competitive, long-term leases with favorable terms for both the operator and owner.  

For cannabis companies, sale-and-leaseback agreements represent a non-dilutive capital solution that can support growth and expansion goals. In Colorado, for example, our firm has worked with The Green Solution to acquire 16 assets since 2014. By helping to unlock the equity in their real estate, The Green Solution has been able to expand from 3 locations to 26.

This approach also adds a trusted landlord and real estate partner to a cannabis operator’s network. As a result of the relationship, operators can make more informed real estate decisions that support business growth by partnering with a firm knowledgeable about site selection, acquisition, development, leasing and asset management. 

For opportunistic investors, acquiring cannabis real estate–primarily stand-alone retail properties–through the sale-and-leaseback model is an increasingly effective strategy for generating above-market, risk-adjusted returns. 

To investors that have discounted the merits of cannabis real estate in the past, it’s worth noting that the same level of traditional real estate due diligence is applied to the cannabis industry. In fact, the basis of each acquisition is an attractive purchase price, often validated by third-party appraisals and located in a market that will result in long-term appreciation. Having cannabis tenants with strong credit adds to the return while the high-quality assets stand on their own.

Cannabis is a $9 billion-dollar industry expected to reach $26 billion by 2025. With nearly 25 million monthly cannabis customers in the United States and more than 500,000 new jobs projected by 2022, the economics of cannabis–and as a result, their impact on real estate–can’t be ignored.

As the cannabis industry matures and the dynamics of retail continue to shift, it’s likely that cannabis and real estate will thrive–and thrive together–thanks to a long-term, mutually beneficial partnership. 

Ryan Arnold and Randy Roberts are partners at Scythian Real Estate, a full-service cannabis real estate firm based in Denver.

From Illegal to Essential: Which cannabis companies will survive COVID-19

With coronavirus spreading throughout the United States and around the globe, businesses across industries are feeling the impact—and businesses in the cannabis space are no exception.

Here in Colorado, the state’s leadership deemed cannabis dispensaries “critical” retail businesses, and the demand for essential products, such as flower, edibles, topicals and tinctures, remains high in our state. Unfortunately, the industry’s massive growth might backfire for many companies as the spread of COVID-19 draws a stark contrast on the long-term stability between different business models in the industry.

With authorities across the country ordering the shutdown of restaurants, bars and other public places and gatherings, some companies in the cannabis space were forced to close, while others turned to curbside pickup or delivery. Many of the shops that could remain open initially experienced a dramatic surge in sales as customers stocked up in fear that their local dispensary would also have to shut its doors during the pandemic.

In fact, reports have shown an increase in cannabis sales. And while campaigns surrounding the legalization of cannabis have slowed during the pandemic, the industry has achieved newfound legitimacy as most states deemed both medical and recreational cannabis dispensaries essential during the quarantine.

Rapid growth—but issues loom for many

The cannabis industry has grown at an astonishing rate—seeing an incredible 15% growth in 2019 alone. In fact, a recent report revealed cannabis is America’s fastest-growing industry. However, many public cannabis companies, with artificial revenue growth and pot stocks, have put their energy into becoming the biggest company in the space, scaling at a dangerous rate and failing to follow basic business principles that promote long-term growth.

While growth and expansion can be quite exciting, these companies often expand into new markets as different states move farther along the path to legalization but fail to recognize whether a store is necessary or even makes sense in that locale. Plus, uncontrolled expansion can cost companies time, money and other resources.

When a company in any industry grows too quickly, it can lose track of its finances and make cash flow mistakes that result in big trouble—despite strong growth, cannabis companies are certainly not immune to business realities. Companies might feel pressured to hire more people sooner than anticipated—putting culture and customer service at risk—and might not be able to cultivate or purchase products quickly enough to fill orders, which can impact quality and customer supply expectations. Increased demand for cannabis products often results in increasing the supply, and you can’t just “make” more cannabis; growing quality product takes time. This simple, often overlooked, reality can prove to not only be detrimental to the product’s quality but can also lead to compliance concerns.

Regulations don’t care about your business issues

Because the legal status of medical and recreational cannabis is continuing to evolve and can vary greatly by state, maintaining compliance with local and state regulations is essential to preserving a company’s reputation and their license to legally operate. From cultivation to sales, every aspect of operation must follow strict regulations, and any missteps can result in significant fines, reputation damage or even a complete shutdown.

By baking compliance into everything the organization does, cannabis companies aren’t forced into difficult positions when new regulations arise—they simply incorporate the new rules into what they’re already doing. Implementing the correct procedures will not only help companies thrive, but it will also create resiliency for years to come. Too-rapid growth, however, can place new employees with insufficient experience in positions to make decisions that should be put in the hands of more seasoned employees.

Culture, culture, culture

Many of these massive companies in the cannabis space have been built to flip versus being built to last, which has a significant impact on company culture from the top down. By focusing on building a successful business, not simply a canna-business, cannabis companies can focus on cultivating a successful culture that drives the company forward.

For growing companies, that means defining a mission and vision upfront, communicating values and teaching all new hires the company way. When a culture isn’t set, new employees are poorly trained, and as a result, customer service and product quality won’t be up to par. With a coherent company culture that’s focused on doing the right thing, quality control and client services aren’t sacrificed for profit, and companies in the space set themselves up for success.

According to industry veterans, as well as a recent article from MarketWatch, cannabis businesses need an abundance of three things to survive the pandemic: cash, cannabis and sales channels. In a time where even solid industries and businesses are struggling (e.g., Wendy’s running out of beef), cannabis companies that grew too quickly or are overleveraged are quickly learning that no industry is safe from disruption and the basic rules of business apply to everyone — even the new kids on the block.

So, which companies will survive post-pandemic? Thus far, we’re seeing the smaller, privately owned cannabis companies that are built to last, not built to flip, are coming out on top. Because it’s impossible to predict the future, a focus on responsible growth, compliance and culture will help ensure the success of any cannabis business—coronavirus crisis or not.