Equity Or Debt: Which Is The Best Path For Cannabis Startups?

Securing capital in the cannabis industry can be challenging, but it is achievable. During the Benzinga Cannabis Insider event, Titans In Finance, financial experts shared their strategies to help businesses succeed.

The event featured Adam Stettner, CEO of FundCanna, Seth Yakatan, partner at Katan Associates International, and Henry Miller, vice president of Pelorus Capital Group, who offered valuable advice on balancing equity and debt.

Unlocking Equity: A Crucial but Costly Resource

Stettner emphasized the critical role of equity in the early stages of a cannabis business. “Equity is the most expensive money you can get in the sense that you’re giving a piece of your business away that you cannot get back,” Stettner remarked. He stressed the importance of choosing equity partners who provide more than just funding.

“You need to know intimately who you’re bringing on as your partner, and they need to bring value beyond the money,” he added. While equity is vital for startups, it comes at a high cost, making it essential to select partners who add substantial value.

Tackling Debt: Strategies in a Tight Market

Yakatan highlighted the current market conditions, which make securing equity challenging and often force businesses to rely on debt financing. “In most capital market situations that I’ve been in, and either early-stage biotech or in cannabis, there’s not a lot of money available,” Yakatan noted.

He emphasized that in such conditions, businesses must secure any available funding to remain competitive, even if it comes at a higher cost. “Sometimes, for me, it comes down to, can you get your company funded, period,” Yakatan said, pointing out the necessity of securing funding by any means possible in a tight market.

Striking a Balance: Using Equity and Debt for Growth

The event provided a nuanced view of balancing equity and debt to fuel business growth. Stettner explained that while equity is crucial for the early stages when debt might be unfeasible, debt financing becomes more relevant as the business expands.

“Early-stage businesses should be raising equity,” he said, “but then the debt should be used to fuel growth from there or purchase either hard assets, inventory, equipment, etc.” Yakatan echoed this sentiment, emphasizing that the structure of capital, whether debt or equity, should ultimately support the growth and sustainability of the business.

The Future of Cannabis Financing

Miller gave listeners a glimpse into the future of cannabis financing, highlighting the importance of adapting to market conditions. “You need to take the capital available because if you don’t, your competitors might,” Miller advised. He also stressed the importance of an optimal capital structure that supports long-term success. “If you take on the wrong type of financing, it may work in the short term, but long term, it doesn’t set your business up for success.”

These expert insights offer a clear roadmap for cannabis businesses navigating the complexities of financing. As the industry continues to mature, the strategic use of equity and debt will be vital for sustaining growth and competitiveness.

Looking ahead, the upcoming Benzinga Cannabis Capital Conference in Chicago on Oct. 8-9 promises to delve deeper into these financial strategies. The conference will be a prime opportunity for industry professionals to gain further understanding and connect with financial experts like Seth Yakatan, providing a platform for growth in cannabis financing.

Read Next:

• Thai Cannabis Advocates On Hunger Strike To Protest Recriminalization Of Marijuana, Health Minister Says It Won’t Impact Gov Decision

Photo: Courtesy of YARphotographer via Shutterstock.