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Getting a business loan for a cannabis dispensary is often more difficult than getting a loan for other industries. Even though many states in the U.S. (like New York and California) have legalized cannabis on an individual level, marijuana is still considered a Schedule I controlled substance under federal law right now.
That fact counts out several financing options I often recommend to clients who run businesses in other areas. But you're not totally out of options, either. When you go to the right lenders who are open to working with businesses in this industry, licensed dispensaries with strong revenue can access options such as term loans, business lines of credit, equipment financing, invoice factoring, and merchant cash advances.
Here I'll talk about the options that are realistically available to business owners in this industry, how to decide which option is best for your specific needs, and what to look for in a lender.
| Typical loan amounts | Speed to funding | Best for | |
|---|---|---|---|
| Business line of credit | Access a credit line up to $5,000,000 | As quickly as same day | Recurring expenses and short-term cash flow gaps |
| Short-term business loan | Borrow from $10,000 up to $5,000,000 | As quickly as same day | One-time expenses, renovations, or expansion |
| Equipment financing | Finance up to 100% of equipment value | 1 to 5 days | Security systems, POS hardware, vehicles, and equipment |
| Invoice factoring | Advance up to 100% of invoice value | 1 to 2 weeks | Turning unpaid B2B invoices into working capital |
| Merchant cash advance | Advance up to $5,000,000 | As quickly as same day | Urgent working capital when speed is a priority |
Note: If you're looking to fund commercial real estate, you may be able to get a commercial mortgage. Those lenders are usually banks, credit unions, or other financial institutions, but options may be more limited for cannabis businesses. Clarify Capital does not write conventional commercial mortgages.
Why Dispensaries Have Fewer Financing Options
As I mentioned earlier, cannabis's illegal classification under federal law means financing options for dispensary businesses are harder to find and get.
Businesses that are plant-touching (like cultivators, dispensaries, and processors) can't access loans backed by the Small Business Administration, which are known for low rates and good terms. The federal-state conflict also makes many banks and credit unions reluctant to lend to dispensaries because of potential legal and compliance risks.
Taxes can bring another layer of complication. Under Section 280E of the Internal Revenue Code, businesses trafficking in Schedule I or II controlled substances generally can't deduct ordinary business expenses the way most businesses can. The IRS has specifically applied that restriction to marijuana businesses operating legally under state law.
Financing Options for Established Dispensaries
This all means that dispensary operators often have to look to private lenders and other alternative financing providers instead of conventional financing. The flexibility of such options, in general, means they also tend to have a higher borrowing cost.
Here are some of the most common financing options I've seen dispensary owners go for and how they work:
Business Line of Credit
A business line of credit is similar to a credit card. It allows you to spend up to a certain amount of money on a revolving basis, and you only pay back and accrue interest on what you use in a given period.
This type of funding is flexible, so it can be used for a variety of expenses, and you typically won't be charged for paying back your balance early. The main caveat is that qualifying can still be challenging, especially for higher limits, and rates, fees, and repayment schedules vary considerably by lender.
Short-Term Business Loan
Short-term business loans are pretty much what they sound like. Lenders give them as a lump sum, and they are paid back, plus interest, over a relatively short period of time, usually anywhere from six to 36 months.
They're good for covering one-time, temporary expenses. They're usually a bit easier to qualify for than long-term loans, and funding turnaround time can also be pretty quick. The payments can be larger, but the trade-off is that you pay it off faster.
Invoice Factoring
Invoice factoring is when a business sells its unpaid invoices to a factoring company. The factoring company gives you an up-front payment and takes over the legwork of collecting payments on future invoices in exchange for a cut of them.
This is a great option if you tend to have trouble with slow-paying clients and don't mind a third party intervening in the relationship. Invoice factoring can often be one of the easiest to obtain, even with a low credit score, because eligibility is based on the strength of your invoices rather than your personal ability to repay a loan.
Equipment Financing
Equipment financing is a funding option specifically for businesses that need to purchase new equipment, from machinery to tech and vehicles. It's great if you need to replace old assets or expand your operations, but you can't quite shoulder the huge up-front cost that often comes with it. This helps you spread payments over time.
The lender pays for the equipment (either directly or by reimbursing you), and you then make monthly payments (plus interest) over a set period, usually between one and six years. With this funding, the equipment itself serves as collateral, so if you default on payments, the equipment can be seized. That reduces lenders' risk, making it a good option for lower-credit borrowers.
Merchant Cash Advance
A merchant cash advance is a type of financing in which a business receives a lump sum up front in exchange for a portion of its future sales.
After getting the cash advance, you generally repay a fixed percentage of your daily or weekly revenue (called a holdback) until the agreed repayment total is paid off. That total is determined by factor rates instead of traditional interest rates. For example: An advance amount of $20,000 with a factor rate of 1.3 would equal a total repayment cost of $26,000.
The main caveat is that you pay more when sales are high (and less when they're slow). But credit probably matters the least for merchant cash advances; your eligibility is based primarily on your revenue consistency and sales volume, not credit score.
What Dispensaries Use Financing For
Running a dispensary often comes with the costs it takes to run any business, but also with a few industry-specific expenses to consider. Here's where I see dispensary owners use the financing options I just went through for most:
Build-outs and compliance
Renovations, compliant storage, signage, and other costs of opening or upgrading a licensed location
Security and surveillance
Cameras, alarms, access controls, secure storage, and other security systems required by state or local rules
POS and tracking systems
Point-of-sale equipment and software used for sales, inventory management, and state-required seed-to-sale tracking
Inventory
Cannabis products and other merchandise needed to keep shelves stocked and meet customer demand
Licensing and renewals
State and local application, licensing, and renewal fees required to keep the business operating legally
Payroll and working capital
Payroll, rent, utilities, and other operating expenses during slower sales periods or temporary cash-flow gaps
Dispensary Financing Is Usually for Established Businesses
Something important I want to mention is that many dispensary financing options are designed for licensed businesses that are already operating and generating revenue. Lenders want some tangible business history that they can evaluate, so having only a cannabis license or plans to open a dispensary generally isn't enough on its own.
If you're still pre-revenue or raising money to open your first location, you may need to rely on owner investment or outside investors until the business has enough operating history to qualify for business financing. At Clarify Capital, this is what we require:
