Adam Stettner knows a lot about the funding needs of small- and medium-sized businesses. As founder and CEO of San Diego-based Reliant Funding, he oversaw over $2 billion in loans to over 60,000 small businesses in his 14-year tenure.
His 30-plus years of business strategy experience has resulted in recognition. He was named the Ernst & Young Entrepreneur of the Year in 2019 and has been a recurring finalist for San Diego Business Journal’s Most Admired CEO award.
Last year, Stettner decided to take his experience in finance to meet an unmet need in the growing cannabis economy by creating and co-founding FundCanna, LLC, which provides short term funding to all levels of the industry and supply chain.The company began financing in January of this year after raising $5 million of equity and $25 million of debt to get going. So far, FundCanna has provided loans for over 100 clients and according to Stettner over the past six months the company has seen month over month growth, and numbers for Q2 exceed Q1 by over 200%.
The Business Journal recently caught up with Stettner to learn more about FundCanna and the challenges and potential rewards in financing the cannabis industry.
SDBJ: What attracted you to the cannabis business?
Stettner: SMBs (small to medium business), specifically in the cannabis industry, are underserved by traditional banking and continue to struggle to gain access to capital. I have always been drawn to solving problems and serving the underserved. Cannabis, while in its early stages, is still far enough along that there are some incredible innovators, entrepreneurs and operators that will grow their businesses and the cannabis industry.
Cannabis is currently legal in some form in 39 states but remains illegal at the Federal level. California alone is forecasted to do nearly $3 billion in legal cannabis sales this year and the overall legal market will exceed $28 billion this year up from $24 billion in 2021 and $18 billion in 2020. With the lack of uniformity in laws from state to state and the instability that comes with any young/nascent industry, there is opportunity to be creative and supportive with financing products that traditional institutions cannot or will not provide.
I did the same thing for traditional SMB when I learned that they are underserved and approval rates in a good economy for non-cannabis businesses run 20-25%. My team and I helped fill that void by funding well over $6 billion to SMBs prior to founding FundCanna. If 80% of traditional small businesses are declined for loans by their banks, cannabis operators will deal with similar needs – this is what attracted me to the industry and why I created FundCanna.
SDBJ: What does FundCanna do?
Stettner: FundCanna provides flexible, renewable access to capital for the cannabis industry and the ancillary providers to the industry. This money can be accessed within 24-48 hours and can be used as general working capital, to pay vendors directly or to assist with any growth or projects these operators are seeking to tackle.
SDBJ: What is the need for cannabis businesses in obtaining financing?
Stettner: Cannabis operators have many needs but most typically we are seeing a gap between the time they must pay for goods, labor, supplies and the time those inputs yield revenue. That delay between the outlay of capital and the inflow of revenue is most typically two to eight months. It is a painful cycle because it ties money up that would otherwise be used for growth. Providing cannabis operators with access to capital and a predictable payment cycle is already proving to grow their revenues, and we are seeing this also reflected across our client base through their financials.
SDBJ: What kinds of loans do they typically need?
Stettner: The most common use of funding from FundCanna is payment of vendors and suppliers. FundCanna pays vendors on behalf of the client enabling them to receive the supplies or goods they need to run their business, fulfill orders or grow without the need to lay out capital, so they can pay over time while creating revenue. By leveraging FundCanna for access to capital, we pay their vendors, they receive their supplies, goods and services and have an agreed upon term to pay this capital back. As they grow, they can draw on the access to capital again and again. In just the first six months, we have clients that leveraged funding 15 times turning capital repeatedly and driving their revenue higher on significantly less outlay. The feedback from the industry has been very positive and the repeat business is a sign the product works for them. We will continue to evolve our product to service the needs of this industry.
SDBJ: How does FundCanna provide these loans? How does it work around federal regulations?
Stettner: The funding we provide is 100% legal and compliant. We only work with licensed and compliant businesses and FundCanna is not in the cannabis business, rather we service the cannabis industry. We only work with clients that have deposit and business accounts with banks and move the money through banks adhering to strict KYC, AML and BSA policies. There are over 700 banks that work with cannabis companies, just a small segment of the banks that exist, but enough for the industry and FundCanna to operate legally and with full compliance.
SDBJ: If federal laws do change, how will FundCanna compete with commercial banks?
Stettner: FundCanna is not a competitor to banks – banks are amazing at what they do. They provide a safe place to deposit money, move money from one bank to another and pay bills. For large loans associated with hard assets like real estate, banks are also outstanding.
I view banks as partners to FundCanna and have always viewed banks this way, even at my prior funding companies. We rely on banks just like any other business does. We deposit and move money via the banking system. However, as discussed earlier, banks do not approve small businesses at the rate industry/commerce requires. For capital without hard assets for collateral or for needs below $1 million, banks are not a great option. This is true for non-cannabis SMB and will remain true for cannabis once federal laws change.
FundCanna was created to fill a need that exists today and will exist well beyond legalization at the federal level. FundCanna provides fast, flexible and renewable funding, built around a crucial client need. While banks are great at many things, FundCanna has a head start at servicing this complex industry.