tiprankstipranks
Rising High: Exclusive talk with funding solutions provider FundCanna
The Fly

Rising High: Exclusive talk with funding solutions provider FundCanna

FundCanna CEO Adam Stettner on cannabis funding solutions, lender red flags and more

In this edition of "Rising High," The Fly conducted an exclusive interview with Adam Stettner, CEO and founder of FundCanna, a provider of flexible, highly-customizable funding solutions to all levels of the cannabis industry. Here are some highlights:

PRODUCT EVOLUTION: FundCanna is a leading lender to the cannabis industry and supply chain, including cultivators, manufacturers, vendors, suppliers, distributors and retailers. The firm assists with vendor financing, working capital, factoring and equipment financing.

“There are a few ways that we are unique, and we will continue to build on,” Stettner said. “Among them is a constant evolution of product. We’re listening to our clients and there is a lot you can learn from speaking with operators. Not only do we now pay third-party vendors on behalf of clients, we also offer customized products based on revenue cycles.”

He said FundCanna is listening to customer needs and constantly adapting the company’s products to meet those needs.

“The other unique thing about our business is that we call on all the experience that we have from lending and funding both consumer and commercial enterprises, prior to entering cannabis, with the experience of underwriting over 1M small businesses across our team,” the CEO said. “There is a lot of knowledge on our team about how to get to the  yes that I think our competition does not necessarily have. It’s easy to say yes, but it’s not easy to say yes with a product that benefits both the client and our company. I’m proud that we have been able to do that so far.”

FUNDING CRITERIA: When assessing a business for funding, Stettner said one of the most important factors reviewed by FundCanna is the company’s cash flow.

“We’re looking for patterns and trends in cash flow and we’re also looking at time in business,” he said. “Given the current environment, we want to know that people have been able to weather difficulty and if they dealt with vendors or clients that were not reliable, that they’ve found ways to work through it and continue to operate.”

LENDER SELECTION: When asked about best practices for cannabis companies looking to select a lender, the CEO said businesses should do their research, not only on the entity itself, but also the principals operating the entity.

“We all really only have one thing to trade on and that is our reputation,” he said. “When you’re assessing a lender or a funding source, you really want to know who you are working with. In the environment we’re in now, it is very easy to find information on both the company and the individuals that you may work with.”

Stettner said cannabis companies should also be unafraid to ask questions to understand who the lender is and their reputation. 

“What has the experience of others been like and how maybe do peers view either that individual, be it the CEO, or the entity?” he said. “There is plenty available there that people can find.”

Cannabis companies should also do their due diligence when it comes to the terms of the lending agreement, the CEO said.

“Just because you’ve been approved, doesn’t mean you should take the money,” he said. “What are the terms of that money? What will that repayment cycle do to impact your cash flow? Make sure that the repayment terms work for you.”

Stettner said businesses should ensure that repayment terms are not overly burdensome to the organization.

“It’s important you do background and really evaluate what the offer that is being made looks like for you,” he said. “You also want to look for hidden fees, prepayment penalties or anything that would in essence create tax or burden on your organization that may not be readily apparent.  If you’re working with a reputable source, they’re not going to bury or hide fees and they shouldn’t penalize you for early repay.”

RED FLAGS, GREEN FLAGS: There are several red flags cannabis companies can look out for when evaluating a funding source, Stettner said, noting often times teaser rates may indicate an offer that is too good to be true.

“There are probably other terms buried within the document that make up for it,” he said. “Warrants are a big one. If you get a low rate but you have to give warrants away, in essence, you’re giving equity away as a kicker. Not only are you paying a coupon, but you’re also giving a chunk at the option of the funding source and you could be giving a good piece of your business away.”

The CEO said in his opinion, it is better to pay a slightly higher rate and still have the autonomy and freedom to control your organization.

“That’s one thing that I would look for: hidden fees or hidden trap doors,” he said. “Look deep, and if you don’t see it, don’t be afraid to ask questions. Put it in writing via email. Are there any other fees other than the following? Lay out what you see the terms to be and get a confirmation of the same. Often things can be buried in the legalese, and you want to avoid that trap.”

Stettner noted that pre-payment penalties and origination fees can also be red flags when assessing a lender.

“It’s very common for loans or any kind of funding to come with some kind of origination fee,” he said. “You do not want to pay that fee until you’ve received the money. Some sources will charge you a fee upfront without ever providing you the capital.”

When looking for green flags businesses should keep an eye out for when evaluating funding, the CEO said transparency is key.

“Overcommunication, reputation and specializing in cannabis are all very important,” he said. “There are a few small business lenders or funding sources that will fund cannabis, but they don’t really understand how the cannabis supply chain and segmentation work.” 

Stettner added flexibility of terms can also be significant when deciding on a cannabis lender.

“You really want to make sure you have that ability because cash flow cycles are semi-erratic for this industry,” he said. “You have to lay out a bunch of money, wait a period of time and then you receive that cash flow. You really want that freedom to pay down your outstanding debt or liability as you desire. That kind of freedom goes a long way and can significantly reduce your overall costs.”

ACCESS TO CAPITAL: Before entering a lender agreement, cannabis firms should inquire about whether they will have ongoing access to capital, the CEO said.

“It’s one thing to be approved for x amount of dollars, even on terms that you view as favorable, but this industry is not unlike other industries in that all businesses have an ongoing need for capital,” he said. “You want to ask the questions, ‘Will you be there for me again? Will you be a reliable and ongoing source of capital for me?’ It’s important because you never know when the need will arise again.”

Stettner added maintaining a strong relationship with a funding source will enable that source to grow along with a company’s business.

“The other important step is I would have your funding source walk you through the document,” he said. “Before you sign, just go through what the document means, give a hypothetical, ask questions and have them articulate each part for you. You don’t have to discern your terms just from the legal document. Your knowledge of the agreed should begin with the document,  with a free-flow dialogue that gets you to a place of comfort with the agreement. A strong funding partner will go out of their way to make sure you feel comfortable.”

ECONOMIC CONCERNS: When asked about how rising concerns around inflation and recession will impact the space, Stettner said the biggest risk lies in the illicit market.

“People are not going to stop consuming cannabis, either for medical or recreational needs, in my belief,” he said.  “The question is if people begin to feel financial stress will they look for less expensive alternatives than the legal market? And if they do, then I think that will have a big impact.”

He said he doesn’t believe a shift to the illicit market would be a wise move for consumers due to the lack of product transparency. 

“You don’t know what you’re getting from the illicit market from a safety and integrity, quality, age, and packaging standpoint,” he said. “I do believe that it is a risk depending on how difficult things become.”

LEGALIZATION: Following the mid-term elections, Republicans won control of the House of Representatives while Democrats retained control of the Senate.

The CEO, who said he does not have an estimate on federal legalization, noted, “Democrats had control of everything for two years and we didn’t see cannabis legislation advance in any meaningful way.”
However, he said voices got louder and headlines around the politics associated with the cannabis industry rose during that time.

“I do not see that stopping, regardless of which party is in control,” he said.  “I do believe that the dialogue will continue, but I do not see it moving as quickly as I would like or believe it should be moving.”

CHALLENGES: When asked about the largest hurdles facing the cannabis space, Stettner pointed to taxation and disjointed licensing processes as two of the biggest issues.

“Taxation is all-encompassing,” he said. “280E is a very big one for the industry, removing the cost of goods as a write off and making the effective tax rate nearly 70%.  Consumers are paying as much as 30%-40% tax on legal goods, inclusive of sales and excise/cannabis specific taxes. All of which then drives operators and consumers to the illicit market.”

The CEO said if not federal legalization, minimally some reform to tax law and deschedulization will end up having a strong trickle-down effect.

"Taxes compress margins and ultimately fuel the illicit market,” he said. “Then there is very little enforcement against the legacy market and that cycle continues. Those are enormous pressures on the industry today.”

Stettner added another challenge is that states don’t appear to be learning from one another in their launching and licensing.

“You may have situations in certain states where you have four times the licensed cultivators to the number of retail outlets,” he said. “Without the ability to conduct interstate commerce, you have an oversupply of goods that have nowhere to go, other than the garbage or out the back door.”

OPPORTUNITIES: As the cannabis sector develops, the CEO said he sees the biggest opportunities in reform and law as well as company rightsizing.

“Rightsizing businesses now, not growing too quickly, really finding a base and working with great partners and great vendors throughout the supply chain are all important factors for cannabis businesses right now,” he said. “Who you are working with matters a lot in this environment and there are some incredible operators in cannabis. That creates amazing opportunity if you align yourself with great operators and strong vendors both up and down the supply chain.”

FundCanna continues to be excited about the opportunity to grow and service the cannabis industry, Stettner said.

“We’ve barely scratched the surface at a few hundred clients,” he said. “I’m just excited about working with more operators, providing more capital and more fuel for growth, as well as continuing to evolve our process. I’ve really enjoyed getting to know a lot of the stories and I can’t wait to continue to service the industry.”

The CEO also noted there is no cost to determining what a funding program might look like for a cannabis operator.

“We don’t charge for conversations and we don’t charge to underwrite a client,” he said. “We do all of that for free, with the intent of determining together whether or not the opportunity for funding would be beneficial for that client.  I would encourage the operators of cannabis businesses or ancillary providers to the industry to reach out to FundCanna to determine whether or not there are products or opportunities that we can work on together.”

CANNABIS/PSYCHEDELIC STOCKS: Publicly-traded companies in the space include Acreage Holdings (ACRHF), Aleafia Health (ALEAF), Atai Life Sciences (ATAI), Audacious (AUSAF), Aurora Cannabis (ACB), Avant Brands (AVTBF), Awakn Life Sciences (AWKNF), Ayr Wellness (AYRWF), Body and Mind (BMMJ), Cannara Biotech (LOVFF), Canopy Growth (CGC), Chicago Atlantic (REFI), Clever Leaves (CLVR), Columbia Care (CCHWF), Compass Pathways (CMPS), CordovaCann (LVRLF), Cresco Labs (CRLBF), Cronos (CRON), Curaleaf (CURLF), CURE Pharmaceutical (CURR), CV Sciences (CVSI), Cybin (CYBN), Delic Holdings (DELCF), Delta 9 (DLTNF), Entourage Health (ETRGF), Fire & Flower (FFLWF), Flora Growth (FLGC), Flowr Corporation (FLWPF), General Cannabis (CANN), BZAM (BZAMF),Greenlane (GNLN), Green Thumb (GTBIF), Goodness Growth (GDNSF), GrowGeneration (GRWG), Hemp (HEMP), HEXO (HEXO), High Tide (HITI), India Globalization Capital (IGC),  Indiva (NDVAF), Innovative Industrial Properties (IIPR), InterCure (INCR), IM Cannabis (IMCC), Wellbeing Digital (KONEF), Khiron Life Sciences (KHRNF), Lowell Farms (LOWLF), Lotus Ventures (LTTSF), MediPharm Labs (MEDIF), MedMen (MMNFF), NewLake Capital (NLCP), Organigram (OGI), Planet 13 (PLNHF), Reunion Neuroscience (REUN),  Revitalist (RVLWF), RIV Capital (CNPOF), Relmada (RLMD), RYAH Group (RYAHF), Safe Harbor (SHFS), SLANG Worldwide (SLGWF), Small Pharma (DMTTF), SNDL (SNDL), Sproutly (SRUTF), Skye Biosciences (SKYE), Stem Holdings (STMH), Sunniva (SNNVF), TerrAscend (TRSSF), Tetra Bio-Pharma (TBPMF), Tilray (TLRY), Tryp Therapeutics (TRYPF), Trulieve (TCNNF), Verano (VRNOF), Village Farms (VFF), Wesana Health (WSNAF), Zynerba (ZYNE) and 4Front Ventures (FFNTF).

Keywords: cannabis, weed, marijuana, cultivation, legalization, CBD, THC, hemp, psychedelics, ketamine, psilocybin, LSD, MDMA

Published first on TheFly

See today’s best-performing stocks on TipRanks >>

Read More on RLMD:

Trending

Name
Price
Price Change
S&P 500
Dow Jones
Nasdaq 100
Bitcoin

Popular Articles