VIDEO: Interview With a Top Financier Behind The “Green Rush”
Welcome to my video interview with Adam Stettner, founder and CEO of FundCanna. Below is a condensed transcript, edited for concision.
FundCanna is a financial services company that specializes in cannabis loans, marijuana business financing, and working capital for the cannabis supply chain.
Adam Stettner has provided small businesses nationwide with access to funding for nearly 20 years. His previous companies doled out over $20 billion to nearly 200,000 small businesses nationwide. My questions are in bold.
Marijuana remains banned at the federal level. Why does that pose unique financing problems for companies in the industry?
The most prevalent challenge facing the industry is a soaring demand for financing. Since marijuana is federally illegal, cannabis related businesses (CRBs) are precluded from being able to secure capital or funding from traditional banks or lenders.
Separate from the fact that it’s federally illegal, marijuana is a high risk industry which comes with its own set of burdensome regulations. Companies that can secure capital are receiving that money at an incredibly high interest rate. Also, many CRBs are not banked, which proves problematic when trying to secure financing.
Due to these financing obstacles, marijuana companies for several years have suffered a cash flow crunch. Has cash flow generally improved for the industry, and if so, why?
The short answer is yes, it has generally improved. Being able to secure new lines of credit or funding has supplemented cash flow in the marijuana industry.
However, the more regulated the industry becomes, the more it hits a business’s bottom line. General overregulation and licensing requirements, along with 280E, eat away at a significant portion of a business’s cash flow. On top of that, other factors such as high property costs, overhead, insurance, and the risk of unsellable/damaged products or equipment that the industry deals with affect their current cash balance, as well as their cash flow.
When evaluating prospective marijuana clients, what criteria do you look for, when deciding whether the company is loan worthy?
The first thing we look for is that the prospective client is licensed and currently operating in a state where cannabis is legal. They need to be active and in good standing with the Secretary of State and must have no alerts with the Office of Foreign Assets Control.
We assess their personal credit parameters on top of their business credit report. If all looks good, we utilize PEP searches and Thomson Reuters to check Clear reports for the individuals and business.
The year 2022 was a tough one for marijuana equities, but investors should keep in mind that the entire marijuana industry was caught in the downdraft of the overall bear market. Do you think marijuana equities will bounce back in 2023, and if so, why?
I think 2023 will be a challenging year. In the legacy states there is an oversupply of product relative to demand.
What’s more, newer state entrants seem to be making similar mistakes and not learning from the past. Additionally, the taxes imposed on cannabis industries currently pose a negative impact on how much profit the businesses are actually bringing in, eventually affecting ROI.
However, I do think 2024 will be the year where the industry begins to flourish. That being said, if I were an investor, I would invest in 2023 to reap the benefits 2024 will likely bring.
As we saw in the recent battle for the House Speakership, the Congress is bitterly divided. Does the gridlock on Capitol Hill preclude significant legislative progress this year for the marijuana industry?
The gridlock does in fact prevent any significant progress made on behalf of cannabis at the federal level. Congress can rarely agree on anything, and it arguably has larger battles to fight.
Therefore, marijuana-related legislation is not taking priority, whether that’s related to federal legalization, the SAFE Act or otherwise. However, if legalization in new states occurs, then that provides progress, though that progress needs to be measured by how many municipalities per state are allowing cannabis industries to operate. But in the grand scheme of things…no, I don’t anticipate any significant progress this year at the federal level.
What are some of the biggest mistakes that you see marijuana entrepreneurs make?
One of the biggest mistakes cannabis entrepreneurs make is not following federal and state regulations or complying with licensing, IRS, OSHA, FDA, and EPA requirements.
Additionally, poor organization when it comes to cash handling affects accounting practices as well as financial reporting, and given that cannabis is a cash business, this is incredibly important to the success of a company in this industry.
Given the federal state of cannabis legalization, not following market conditions or the politics of the state in which the business operates can negatively affect the profits and overall success and survival of entrepreneurs in this industry.
In your view, what are some of the under-the-radar investment opportunities in the marijuana industry in 2023? The marijuana industry gets a lot of news coverage. What are a few profitable areas that the herd is missing?
Infrastructure and ancillary businesses are the less sexy sector of the cannabis industry, however they have the most potential.
There is an oversupply of growers, and growers aren’t necessarily the safest investment opportunity. Investing in infrastructure and other businesses that support the marijuana industry has less risk and a bigger potential for return.
Thanks for your time.
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John Persinos is the editorial director of Investing Daily.