The cannabis industry is still evolving as investors and businesses navigate the unclear legalities surrounding the use and sale of marijuana and its products in the US. However, despite the challenges, many cannabis angel investors have found opportunities to fund some marijuana businesses and take a chance on the industry.
Who are Cannabis Angel Investors?
You’ve probably heard of angel investors in the regular business world. These individuals are early-stage investors with high net worth who back businesses with seed funds to achieve their goals.
Similarly, cannabis angel investors are high-net-worth individuals who fund budding cannabis projects they believe have the potential to succeed. These angel investors select canna companies for different reasons and invest their money in them.
For instance, some cannabis angel investors are partial toward medicinal marijuana companies, and others prefer to invest in the recreational cannabis space. At the same time, some marijuana angel investors only back cannabis projects developing scientific innovations that society can benefit from.
When thinking of angel investments in the cannabis industry, it’s crucial to note that cannabis angel investors slightly differ from traditional angel investors. Let’s look at some differences below.
Differences Between a Cannabis Angel Investor and a Traditional Angel Investor
At their core, angel investors in the marijuana industry and other industries fund businesses for potential profits.
Whereas traditional investors seek legalized and established companies like Silicon Valley businesses, hemp investors find canna businesses with fewer risks and multiple opportunities. These cannabis operators are often legalized at the state level.
Why Cannabis Attracts Angel Investors
The primary reason investors fund cannabis businesses is because of the high potential gains they can get. Since the cannabis industry is rapidly evolving, investors are looking for opportunities to enter the market before its big boom.
Don’t forget that the cannabis industry is still shaping up, and it offers various growth opportunities. Medicinal and recreational cannabis companies can both develop innovations for their markets. For instance, medicinal cannabis companies can develop innovative solutions that will transform the world.
According to Statista, the global cannabis market is projected to reach a revenue of $51.27bn in 2023. The potential of the cannabis industry is a significant motivator for investors hoping to take advantage of the opportunities that abound.
At the same time, the legal landscape for cannabis production and usage is beginning to soften. Countries like Canada and the UK have legalized cannabis at the federal level. However, this isn’t the case in the US because the country’s federal laws still treat marijuana as illegal.
But more states are opening their arms to cannabis businesses by providing them with the legality they need to operate. These include states like Arizona, Colorado, Massachusetts, and Washington.
With more states legalizing the cultivation and consumption of marijuana, there will be more push for federal regulation and, potentially, a massive growth in the industry. And this is another reason angel investors with foresight are attracted to the industry.
What Do Cannabis Angel Investors Look For?
Before an angel investor funds any business, there are certain things they look out for to ensure they put their money in the right place. These factors are also what cannabis angel investors often consider when choosing a marijuana startup to offer seed money.
The first factor is the business structure. These include things like the company’s operation model and investment readiness. A company without structure cannot stand the test of time, even with a fat investment check. Investors understand this, so they first ensure the house is in order.
Similarly, investors usually release seed funds to businesses they believe have a strong leadership team with enough experience. Founders are essential parts of business success, so their dedication, experience, and grit matter in the grand scheme of things.
Because of this, cannabis angel investors evaluate the startup’s team’s track record and experience handling finance, branding, and marketing. These three branches are the bedrock of any successful company.
For instance, a startup with strong branding can attract customers and turn them into brand ambassadors in the long run. So, founders with strong experiences across the sections often build successful businesses.
An angel investor also wants to understand the company’s goals, plans, and projected values to understand its future potential. Investors will ask questions related to scalability and potential returns on investment (ROI) within a specific period. At this point, the company’s financial records may be required.
They will also strive to understand the company’s vision to determine if it aligns with theirs. For instance, is the cannabis company focused on the medicinal use of marijuana to develop medical solutions or pushing for social justice ideas?
Finally, investors want to ascertain the company’s product-market fit to understand if there’s an available market for the product or service. This is an important factor for all cannabis products and services, as they require a decent market share to sell and make profits.
Ways to Secure Angel Investment for Your Cannabis Startup
Getting angel investors for your cannabis business is not a walk in the park. Each angel investor is unique, and they prioritize things differently. However, you will potentially get a cannabis angel investor using the pro tips below.
Start Small
The first method is to bootstrap your startup to achieve sustainable growth. Only a few companies experience sudden growth at the ideation or early stage. As much as the idea may be good, investors are more likely to invest in an existing business with a cash flow record.
Keep Financial Records
Investors will want to know your company’s financial health before funding it. Ensure you keep records from the first day of operations to provide them with your real financial health.
Build a Solid Management Team
Ensure you have a formidable management team leading your business operations, especially across marketing, branding, and finance. If necessary, hire a consultant and send your top decision-makers on development training.
Raise Funds at the Right Time
The fact that you are running a small business doesn’t mean you need seed capital immediately. Consider whether the raise is in your best interest and will significantly change your long-term goals. Taking in seed funds too early will negatively impact your startup’s valuation.
Network and Connect
As a business owner, the importance of expanding your professional network cannot be over-emphasized. Networking offers you the opportunity to pitch your business to potential angel investors and build a solid reputation.
So, attend networking events as much as you can and connect with people when you are there.
Have Realistic Valuations and Expectations
Since the cannabis industry is still evolving, it’s easy to get carried away when evaluating a company’s worth. At the same time, it’s possible to get carried away by the lofty dreams you have for your startup.
The truth is, you don’t need to be the next unicorn to get funding. Cannabis investors know there’s a limit to your company’s long-term growth. So, be realistic about your valuations and future expectations instead of overhyping your startup.
Benefits of Partnering with Cannabis Angel Investors
Working with cannabis angel investors can be challenging for business owners, especially first-time founders. Getting an investor and the needed capital is more complex than it seems. However, working with these investors comes with numerous benefits, whether you’re just starting out or scaling your business.
1 – More financing than bank loans
A cannabis angel investor can provide better capital for your cannabis business than banks or other financial institutions. That way, you can do more for your business.
2 – Business management freedom
Another advantage of working with a cannabis investor is the freedom they give you to run your company. Because of this, you can stay on top of things without being micromanaged and expand your business into more markets without interference.
3 – Better expertise and guidance
A cannabis angel investor has a better network of friends and associates they can connect you with to help expand your business. For instance, an investor can connect you with a large enterprise that needs your product or service and guide you on how to run the business successfully.
4 – Mutual drive and grit
A good cannabis angel investor will be a good ambassador for the company. Ideally, they will take the business as theirs and support you all the way.
Conclusion: The Future of Cannabis Angel Investing
The cannabis industry still remains largely untapped and has recorded significant growth over the years. With its massive potential for the future, cannabis business owners looking for seed funding from angel investors must position themselves for the perfect moment using our tips above.
However, remember to research a potential investor before divulging information about your business. Check their track records and speak to other startup founders to make informed decisions.
Also, ensure it’s the right time to raise funds, and if you have questions or need help, you can reach out to your network of market experts to find solutions.
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Tobi Opeyemi - Financial Writer
Tobi, a journalist and crypto writer since 2017, is renowned for his educational content in the digital currency realm. His journey includes a significant tenure with Stockbossup, an investment platform committed to enlightening the black community on financial matters. Before this, Tobi honed his skills as a copywriter at Turboxbt, a platform specializing in cryptocurrency trading. Notably, Tobi's insights are featured on Investopedia, where he contributes articles on a range of topics. He is also celebrated as one of the top web3 creators on LinkedIn, known for content that consistently drives engagement and sparks conversations in the industry. With a background in Pharmacy, he brings a unique perspective to his writing, especially in the Cannabis sector.
