What Businesses Should Know About New Jersey Cannabusiness Loan Options

As of April 21, 2022, recreational marijuana has been legal in New Jersey, though there are still some regulations restricting its sale and use. 

This law means that recreational marijuana is now available for purchase through preexisting medical marijuana dispensaries. That’s good news for current New Jersey cannabusiness owners, who can take this opportunity to expand into a new market. Here’s how you can obtain financing.

Can Banks in New Jersey Provide Financing to Cannabis Companies?

So far, marijuana legalization has been occurring on a state-by-state basis. Because of federal restrictions, traditional banks have not been able to meet industry demands, which means that NJ cannabis businesses won’t be able to obtain funding through banks and traditional business lenders. 

The situation may change as more states legalize recreational cannabis use. But for the time being, New Jersey cannabusinesses will need to seek out alternative financing.

4 Ways Existing NJ Cannabis Businesses Can Expand

Now that New Jersey cannabis dispensaries are able to legally sell recreational marijuana, it is a great time to consider expanding your business. Here are four ways that you can scale your business in the near future.

Private Cannabis Lenders

Since banks and other established lending institutions don’t typically work with cannabis businesses, a small number of private cannabis lenders have begun to fill the gap.

Private cannabis loans are generally lump-sum loans, which are also called installment loans. Borrowers are required to repay the loan in monthly installments — plus interest — over the course of the loan term.

Lump-sum cannabis loans are ideal for New Jersey cannabis business owners who have a specific dollar amount in mind, as well as the financial means of repaying the loan. The only drawback is that with relatively few cannabis lenders out there, it’s especially important to compare terms to ensure you secure the lowest interest rate.

Lines of Credit

Some business owners prefer the flexibility of a business line of credit, which functions much like a consumer credit card. Borrowers may spend up to a certain credit limit and pay interest on the amount that they borrow. As long as you repay the balance during the draw period, you can continue to use a line of credit repeatedly.

On the one hand, this option can provide greater flexibility for New Jersey cannabusiness owners who are uncertain of their exact financial needs. 

However, a business line of credit won’t provide the higher dollar amounts of a private loan. And depending on your lender, you could also be facing higher interest rates than if you’d gone with an installment loan.

ERTC Bridge Loans

Employee Retention Tax Credit (ERTC) bridge loans are a specialized form of financial assistance, having come into existence during the pandemic through the 2020 CARES Act. Though it was quickly overshadowed by the Payment Protection Program (PPP), the ERTC was established as an incentive for business owners to retain their workers. 

The ERTC is a refundable tax credit that you can use for qualifying payroll expenses. Since the ERTC is based on payroll taxes, you may still qualify even if you paid no income tax between 2020 and 2021.

This program can make it easier for businesses to obtain financing while retaining employees. For more specifics about the program — and how to qualify — visit the IRS web page for employee retention credits.

Investors

Since the legalization of recreational marijuana is still fresh news, some investors see it as a great opportunity to enter the NJ marijuana industry. Private investors may be willing to sink money into your business to help you reach new markets or expand your product line.

With this option, you will have access to financing with terms that are negotiable between you and the investor. But be careful because these investors can have a say in how your company is run, and they’ll also be entitled to a portion of your revenue if your business is sold.

A variation of this approach is crowdfunding. An online crowdfunding platform lets your friends, family or community donate money to your cause without expecting to be paid back. While the platform takes a cut of your income, it can be a great alternative financing option, and it will help you get the word out about your expanded operations.

Considerations for Operating and Financing Cannabis Businesses in New Jersey

Before you apply for a cannabis business loan in New Jersey, make sure you think through the regulatory and financial issues. Consider, for instance:

• State laws still restrict the amount of product sold to each customer.
• Only dispensaries are authorized to distribute recreational marijuana.
• Cannabis business owners need to obtain financing that fits their business.

Additionally, many dispensaries are owned and sponsored by larger corporations. This means that you may be facing stiff competition in the New Jersey marketplace. Obtaining the right financing can give you an edge and help you thrive in this new market.

Grow Your New Jersey Cannabusiness

For at least the time being, recreational cannabis distribution is limited to existing dispensaries. But if you’re already a New Jersey cannabis business owner, you’re uniquely poised to expand. The right financing will allow you to scale your business, reach new markets and stay ahead of the competition.

Frequently Asked Questions