Cash-Strapped Entrepreneurs Squeezed Out Of Marijuana Business

13. June 2018.

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Tight regulations around the legal marijuana industry are barring non-wealthy entrepreneurs from entering the market, according to reports from Forbes on Wednesday (June 13).

The cost of starting a legal marijuana business is a barrier too large to surpass for many entrepreneurs, an issue that highlights additional challenges of the industry aside from a lack of adequate access to financial services. Combined, the application, licensing and startup costs range between $4 million and $6 million, reports said, while the cost of operating a dispensary can be as high as $2 million.

The lack of access to banking services means these businesses are unable to obtain loans if they wish to enter the marijuana sector; in many cases, wealthy entrepreneurs are the only professionals able to break through. Non-wealthy entrepreneurs have the option of raising money from investors, friends and family, but are typically forced to give up majority ownership of the enterprise in this case.

“Many groups that were granted licenses in the first application round in Massachusetts in 2014 are still not open today, largely due to the inability to find the $4 million to $6 million minimum needed for a large-scale, vertically integrated cannabis operation,” the publication wrote.

Reports also highlighted the successful and wealthy back stories of some of the nation’s current leading marijuana businesses. Wall Street executives are behind Columbia Care, for instance, while Captor Capital and resource entrepreneur John Zorbas have backed MedMen.

This issue is one of the consequences of disjointed legislation targeting the marijuana industry, which struggles to obtain financial services while the substance remains illegal under federal law. The FinTech industry has swooped in to address some of these hurdles and provide alternative financial services to cannabis firms, while state legislators have also taken measures to ease restrictions on marijuana banking without running afoul of the federal government.

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