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How can I raise capital for my cannabis business? Who should I talk to and what should I say? In this episode we meet Oren Klaff. Oren is one of the world’s leading experts on sales, raising capital and negotiation. Oren is the Director of Capital Markets at the investment bank Intersection Capital, where he manages its capital-raising platform. Oren shares advice on what you should have in your cannabis business plan, what makes a business attractive to an investor, and how to make a pitch that is persuasive for raising capital.
Cannabis investing has changed. Capital is being fed into more mature businesses vs startups. When investors look to invest in cannabis, numbers are more persuasive than passion. In the past startups could focus on the demand side of the market but investors are now concerned about execution and trust you have the skills to grow an organization.
Elements of a Cannabis Business Plan
Business plans are not what most people they are. They are not a 40-60 page document instead it’s a document that focuses on the financials. Every business plan must have three parts?
- One page teaser that provides a summary of the business
- Financial model with key assumptions that speaks to the demand (revenue) vs manufacturing costs
- Eight page slide deck explaining in English the math of the financial model
Have a Cannabis Financial Model
What should the financial model look like:
- Consider your household budget, look at things that matter and those that don’t
- Choose three elements that may have the greatest effect on the business
- Look at the business from a number of angles, opportunities and threats
An example you might get asked: ‘What if the cost of labor raises 15%, how would that effect profit margins?” You should be able to explain the ramifications and implications of that rising labor cost by walking through the model.
Script for Pitching a Cannabis Business
There is a right way and a wrong way to persuade investors to invest. The trick is to organized, methodical and express the passion for the project at the right time. An example pitch:
- Times are changing in the industry, there are new trends eg, crypto, stable coins,
- There are small windows of opportunities,
- If you know how to work within the constraints of distribution, regulation, capital, these opportunities can be seized
- This is the challenge, shared in a somber tone
- We have a solution that can address this opportunity, shared in a neutral tone
- This is our solution, described in a passionate tone
- We are excited and pumped to share this with you today
Don’t sell facts with emotional color. Be credible and stoic about the realities of the market. Make sure to share this knowledge at the right time. Don’t be all hype. Investors are looking for a solid ROI.
What Cannabis Investors Value
Every investor is different but some element they find attractive include?
- Sexy
- Exciting
- Captures demand easily
- Is a better business than existing businesses
- Grows fast
- Capital efficient
- Has defense barriers not easily copied (intellectual property)
- brand
- Has new ways to distribute or manufacture
Next they want to see a financial plan that’s already been done. Mandatory elements of the model should include:
- Revenue
- Expenses
- Taxes
- Energy costs
- Employees W2s and 1099s
- Income
- Debt payment
- EBITDA
Don’t show innovative way to model your finances in the model. Give them a familiar financial model similar to what they see everyday.
Get in the head of the investor. Know that they stack up risks:
- management risk
- market risk
- execution risk
- technology risk
- competitive risk
- economic risk
Investors understand that businesses can only take so many risks that can be addressed at a time. The less risk, the better the investment.
Emerging Trends in Cannabis
- Federal legalization
- Adoption of cannabis by Fortune 2000 companies
- Financial capital markets openness to financing cannabis businesses
How To Connect with Oren Klaff
The Cannabis Advocate Podcast
The Cannabis Advocate podcast advocates for businesses in the cannabis industry and the explores the unique challenges they face. Despite hurdles in legislation, regulation, and culture, there are tremendous opportunities for growers, producers and sellers of cannabis products. Many of these issues are unique to the cannabis industry, This podcast speaks to these common concerns and shares stories of success.
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