Can Cannabis Companies Get Asset-Based Lending?

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Contributor, Benzinga
March 21, 2023

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Yes, cannabis companies can get asset-based lending, but it can be challenging.

Asset-based lending is financing where a company uses its assets, such as inventory or accounts receivable, as collateral to secure a loan. However, because cannabis is illegal in the United States on a federal level, traditional banks and financial institutions are usually reluctant to provide loans or other financial services to cannabis companies.

As a result, cannabis companies turn to alternative lenders specializing in the cannabis industry. These lenders are more willing to provide asset-based lending. 

What is Asset-Based Lending?

The cannabis industry has traditionally been underserved in terms of financing options, making asset-based lending an attractive option for cannabis companies looking to access capital. Asset-based loans are typically secured by collateral such as inventory, accounts receivable or equipment and provide a quick funding solution with flexible repayment terms. 

How Does Asset-Based Lending Work in the Cannabis Industry?

The interest rates on these types of loans may be higher than traditional lending options, but they offer a viable option for cannabis companies that may not have the necessary credit to qualify for more traditional forms of financing. With an asset-based loan, the funds can be used for various purposes including expanding operations, purchasing additional inventory or equipment, covering operating costs during a cash flow shortage or other business needs. In addition to providing access to much-needed capital, asset-based loans also offer flexibility and speed thanks to minimal paperwork and short turnaround times. 

4 Types of Cannabis Asset-Based Loans

The four types of cannabis asset-based loans include:

Accounts Receivable

Accounts receivable financing for existing cannabis businesses is a unique form of asset-based lending that allows companies to leverage their outstanding invoices or accounts receivable as collateral for a loan. The lender assesses the value of all open invoices owed to the cannabis business by its customers and provides a loan in exchange, which typically amounts to a percentage of that value. This type of loan gives cannabis businesses access to quick funding that can be used for operational expenses, inventory procurement and other investments in their business. 

Inventory Financing

Inventory financing for cannabis businesses is a type of asset-based lending that uses a company's inventory as collateral to secure a loan. The lender evaluates the value of the company's inventory, which can include cannabis products, related merchandise or raw materials used to produce these products, and provides a loan based on a percentage of that value.

This funding system can be beneficial for cannabis businesses requiring additional capital to purchase more inventory or cover expenses during periods of lower cash flow. With inventory financing, the value of the inventory serves as collateral, which may make it easier to obtain financing.

The lender may have specific requirements or limitations on the types of inventory that can be used as collateral. For example, some lenders may only provide financing for finished cannabis products rather than raw materials or plants in the growing process.

Equipment Financing

Equipment financing for cannabis businesses is a type of asset-based lending that uses a company's equipment as collateral to secure a loan. The lender evaluates the value of the equipment used in the production or distribution of cannabis products and provides a loan based on a percentage of that value.

Equipment financing can be beneficial for cannabis businesses that need to purchase or upgrade equipment but do not have the capital on hand to do so. Using equipment financing, these businesses can access the money they need to purchase or lease equipment and maintain their operations.

A cannabis business may not have the credit history or collateral required to secure a traditional bank loan. However, with equipment financing, the value of the equipment serves as collateral, which may make it easier to obtain financing.

Real Estate Financing

This type of financing allows businesses to use the equity in their real estate assets, like a cultivation facility, dispensary or office space, as collateral for loans. 

Real estate asset-based financing can be used for a variety of purposes, such as purchasing new properties, expanding an existing facility or making upgrades to improve efficiency and productivity.

Advantages of Asset-Based Lending for Your Marijuana Business

Asset-based lending can provide a unique opportunity to access financing that is more flexible and tailored to the company’s individual needs. Unlike traditional bank loans, lenders evaluate the value of a business’s assets, such as inventory or accounts receivable, rather than relying solely on the business’s credit history. 

Another benefit of asset-based lending is its ability to accept a wide variety of assets as collateral, including cash, inventory, accounts receivable, real estate and equipment. These options help businesses looking to leverage different types of assets to secure financing. 

Asset-Based Lending vs. Cash Flow Lending

Asset-based lending is a type of financing in which cannabis businesses, or any business for that matter, can use existing assets as collateral to acquire the capital needed for operations. The most common form is the use of accounts receivable and inventory as collateral. Such loans are generally considered lower risk than other forms because of the collateral being secured by tangible assets. When used properly, they can be a great way for cannabis companies to grow their business.

Cash flow lending is also a popular financing option for cannabis companies. This type of lending uses an underlying cash flow stream as the basis of approval and repayment. Generally, cash flow loans don't require collateral but instead assess the risk associated with a company’s income and expenses on a regular basis. Lenders are able to leverage tax returns, balance sheets and other financial documents when deciding upon creditworthiness. 

The main drawback of cash flow lending is that it often requires companies to have higher revenues or longer histories before they can qualify for a loan because of the focus on future projections. 

Both types of lending offer opportunities for cannabis companies looking to finance growth. Depending on your current financial situation, one may be more beneficial than another because of factors such as cost savings related to interest rate or amount borrowed, the speed at which approval could be secured and the scalability of funding amounts available. 

Partnering With the Right Lender

Asset-based lending is a game-changer for cannabis businesses looking to take their operations to the next level. Whether it's acquiring new properties, upgrading equipment or increasing inventory, asset-based lending options are available to meet your business's unique needs. With the right strategy and the right lending partners, cannabis businesses can access the capital they need to grow and thrive. 

Frequently Asked Questions


What are examples of asset-based lending?


Asset-based lending is a type of financing in which lenders use the borrower’s assets (e.g., accounts receivable, inventory, real estate) as collateral for the loan. Examples of asset-based lending include factoring, invoice discounting and equipment finance.


What is the interest rate for asset-based lending?


The interest rate for asset-based lending depends on the risk profile of the borrower and the type of asset used as collateral.


Do banks do asset-based lending?


Many banks provide asset-based loans but not for the cannabis industry.