Short-Term cannabis lending options The Cannabis Investor Series sponsored by PodConx is back for the Fifth year. This year, the Series will again feature the cannabis top investors and lenders, reviewing how the current macroeconomic cycle is affecting investing in these sectors, what to expect in 2023 and sharing investment opportunities and strategies. In today's episode, Dan Humiston is joined by George Mancheril the CEO of Bespoke Financial Produced by PodConx MJBulls - https://podconx.com/podcasts/raising-cannabis-capital Dan Humiston - https://podconx.com/guests/dan-humiston George Mancheril - Bespoke Financials - https://bespokefinancial.com/ Recorded on Squadcast - https://squadcast.fm/
Short-Term cannabis lending options
The Cannabis Investor Series sponsored by PodConx is back for the Fifth year. This year, the Series will again feature the cannabis top investors and lenders, reviewing how the current macroeconomic cycle is affecting investing in these sectors, what to expect in 2023 and sharing investment opportunities and strategies. In today's episode, Dan Humiston is joined by George Mancheril the CEO of Bespoke Financial
MJBulls - https://podconx.com/podcasts/raising-cannabis-capital
Dan Humiston - https://podconx.com/guests/dan-humiston
George Mancheril -
Bespoke Financials - https://bespokefinancial.com/
Recorded on Squadcast - https://squadcast.fm/
Dan Humiston: [00:00:00] Today at MJ Bulls, we are continuing the fifth annual Cannabis Investor series. Sponsored Pod by Pod connects the cannabis industry's exclusive network of cannabis podcast that actually allows cannabis companies to advertise go to pod connects.com to connect to more cannabis listeners. On today's show, we are joined by George Man Shell, the c e o of Bespoke Financials. George, welcome to the show.
George M: Thanks
for having me.
Dan Humiston: I'm glad to have you on this year's series I, we've been doing the Cannabis Investors series every year since 2018, mostly.
All of our guests have been VCs because selling equity was really the only way for cannabis companies to fund their growth. But fortunately now cannabis companies are getting access to being able to borrow money and use debt to fund their growth. What happened over the last, say, five years that allowed borrowing to.
George M: Yeah, I think it's, it's a mix of two [00:01:00] factors. Um, one would be changing investor sentiment, and the other would be, , changing, Sort of expectations of the market. So starting with expectations of the market, you saw VCs and any equity investor really bowled up on the cannabis space starting 20 17, 20 18.
This was before large markets like California have really launched or taken off in terms of adult use sales. , and since then we've had a number of markets turn on prior to adult use being on in more states than just Colorado and or, uh, Washington or Oregon. Really, investors had, I think, unrealistic expectations about the growth of the legal market.
The illicit market remains, uh, the number one competitor to any legal licensed operator in the cannabis space right now. And the challenges of starting an industry. From nothing to being a huge multi-billion dollar CPG segment. , both of the expectations of the industry being able to increase rather remarkably were [00:02:00] overstated.
So what you have is, , a resetting of expectations on the equity investor side that caused a retreat of those investors. And that started in mass, I'd say in 2019. , really driven by the fact that Canada went legal, , when Canada went legal with. A lot of companies listed publicly and when you list publicly, you have to report earnings publicly.
And so all investors started seeing that just because you end the prohibition of cannabis doesn't necessarily mean that the sky's the limit, and these companies will just have an easy time scaling. So that's been a continued trend, , especially as challenges in the industry has materialized. What that's done is basically cause investors to really reprioritize and focus on.
because debt is a less risky, theoretically a less risky investment for an investor. You have collateral coverage. , you have an expectation of getting your money back, and it's very much tied to the economics of the business. And for bespoke financial, , we were established in June, 2018, so we thought we were early, but [00:03:00] we did expect that equity investors would eventually get less enthusiastic about the space and more important.
If this industry were to scale, we realize the vital need for non-dilutive debt financing. And so, you know, we've been seeing this trend materialized since the inception of the company.
Dan Humiston: Uh, you know, I'm gonna add one thing to that is that I, I think in addition to the investors not as excited but what you're seeing is the. companies valuations are so, are lower now than they were, and so now they're starting to appreciate that their equity is super, super valuable and you just don't want to give it away and a and, and a whim.
So, so debt, I think it's, that's way more attractive than it, than it was before when they were really frothy. Valuations.
George M: Yeah.
Yeah. And that was definitely something that we encountered at the beginning of our company's formation. , if , you start a business and you know, you have equity investors telling you that,[00:04:00] , today your company's worth 200 million and in six months you can do a raise that, , doubles that or triples that.
For you to give up some equity to take more capital becomes a very small slice of the. Exactly to your point now that valuations have come down meaningfully , for any offers that you get, you're gonna have to give up a much larger percentage of your business. And compared to that, it's not as though debt is free money.
In the early part of our, , business development ramp. We would come across conversations where a company was looking at either taking equity capital at a very high valuation or taking, , a loan from Bespoke and loans come with terms. They come with, you know, sort of restrictions in terms of what the borrower can do just to ensure they're making smart, decisions for the business overall.
And, the determination on the borrower was why would I agree to all these terms and covenants when I can just. The free money that I see from equity. , and so now that's flipped. Now, , I think not only has, has the, , attractiveness of just paying interest and, you know, living within the framework of the loan agreements become more attractive for [00:05:00] businesses.
I think, , a lot of companies that we work with, The fact that there's another person at the table that's ensuring that the management's making very smart decisions and sustainable decisions for the business pays dividends for everyone that's involved. So I think it was a mix of all of those factors, for sure.
Dan Humiston: We have interviewed a lot of companies that provide depth, but they always. Are based on real estate, like it's, it's based on how much they're gonna loan is based on the value of the real estate.
They use the real estate as collateral. , you provide different than real estate loans? Can you tell us some of the loans that you provide?
George M: Sure. Yeah. So when a company approaches us interested in seeking our financing, we obviously underwrite them very similar to any other lender that's in the space. But to your point, we typically don't secure ourselves against the real estate of these companies. And I'd say the vast majority of the industry, , doesn't own the real estate.
You know, typically they're, they're sitting on leases for the property, they. Which, , if that's a requirement for you to get financing, that's gonna be a significant deal blocker for you. For bespoke, what we do is we [00:06:00] evaluate the actual assets of the business. So if you look at, you know, a, a manufacturer that's sitting on some number of pounds of cannabis flour, some number of finished goods that they haven't shipped to their CU customers just yet, those.
Assets, those have value. , but the problem is they're value that's tied up in the inventory itself. So when we underwrite, we look at exactly what is sitting on the balance sheet, what the strength of the business is, and then we secure our financing against those company assets. And so we like to describe it as.
Unlocking value and accessing capital against assets that you currently hold on your balance sheet that otherwise would just be the assets in your warehouse. And so we look at the holistic picture of the business. We wanna make sure that there's a sustainable model. , we wanna make sure that the management team understands their business, and has a good use case for what they would use our capital.
And ultimately we address a very specific need. We target working capital financing. So that [00:07:00] means we don't work with companies that are pre-revenue. We don't provide startup capital. And we similarly don't offer, you know, seven or 10 year term loans. What we offer basically solutions for companies that are limited by the amount of capital they have on a recurring basis.
So going back to the manufacturer example. You have to go out, assuming you're not vertically integrated, you have to go buy flour. You have to then buy packaging. You have to then produce your finished goods and then ultimately sell it to the customer and then wait for your customers to pay you so that you know you can then repeat the cycle.
What this does is it ties up a lot of your capital. In the inventory we talked about before. It ties up a lot of your capital, depending on how long your customers take to pay you, which will limit your production going into the next run. So our financing. Really meant to address similar situations. Another pressing need would.
Quarterly tax payments that can be rather sizable and chunky for any of these operators. You know, that puts a significant crunch on the amount of cash that you have on hand. So our financing, [00:08:00] whether, you know it's a line of credit, whether it's inventory, financing, uh, we really focus on alleviating those burdens.
So if you have to go buy the flower for your next production run, you can use our line of financing to pay your vendors. Have access to the raw materials that you want, sell it to your customers, and then once they pay, repay us, and that increase in production is meant to be accretive to the business.
And so even a borrower that says, you know what, I can, I have no problem paying my vendors and my customers. Pay me exactly on time. I would say congratulations to your standout in the industry. , but even more so think about what this additional financing can mean in terms of growing your business. , if you did have the scale to operate at a larger capacity, can you turn on a new market?
Can you sell into a new district in the state that you aren't selling into? Or can you lower your unit costs that let you be more competitive in this environment? And, you know, that's been the theme of the year. It's, there's a lot of supply out there, there's a lot of competition and so you really do need to focus on being as efficient as possible.
And sometimes that can mean, , increasing [00:09:00] your production just so that you are able to produce more with the, the assets and, and the, uh, the property and equipment that you have already.
Dan Humiston: , can you walk me through the process of getting a line of credit? If, if, if a company were in it, one of those situations?
George M: Sure. Yeah. I mean, for us there's a variety of ways, but a, , for also for any interested company that's listening, , you can either reach out on our website, , reach out on any of our social media. , the actual application process involves a few core components, primarily of which are financials, so a big blocker.
, less so now, but more so I'd say two years ago was a lot of these companies wouldn't have their financial statements in order. So we're talking just basic. income statements, balance sheets, , make sure you're tracking your accounts receivable so that you know which of your customers have paid you versus which haven't.
And that's information that we use to really understand the nuts and bolts of the business. Typically, we'll have a call with one of our account execs, um, and anyone from the applying company just to explain our financing options. We do have a variety of [00:10:00] different products and there are different use cases tied around it.
And with the application in. We do our underwriting entirely in-house. , we are able to return to the applicant and show them a proposal of what our financing would look like. And there's a couple key salient points where, because our capital's intended to be recycled on a fairly frequent basis, , we do have to do some amount of education for the applicant to.
Understand how to think about it, right? This, again, this isn't a seven year term loan or a 10 year term loan. This is capital that you recycle on your production runs or as your customers are paying you. So the process is fairly simple, but , the easiest step I would say would be to reach out and at which point someone from our team can walk them through exactly what the f, the requirements for the application are and really help them along the
process.
Dan Humiston: on your website it says the turnaround time is fairly quick, so it's not like months and months and months and months and months. You can, it's the turnaround time is fairly quick. before I let you go, we have a lot of in investors that listen to this, to this show is are there [00:11:00] ways for my listeners to participate in your company?
Are there opportunities for investment within your company?
George M: , well, we don't, we don't have a, , an active round right now, but, we remain in touch with, , investors on an ongoing basis. , I like to think of bespoke as really being a bridge. , , on the one hand you have the cannabis side, which, , the legal cannabis market, I should say.
that is legal on a state level, but legal on a federal level that is, , really under pinch of not having access to the amount of capital that they would if federal legality was in place on the other side, you basically have the financial industry where the capital sits, and there's a lot of investors that are hesitant to.
Move and deploy capital before that federal regulation changes. And so I like to think of bespoke as really being a bridge in between. And , the idea is it's always a two-way conversation. , we need to be in touch with as many investors that can deploy into the space as possible. , and then conversely, The cannabis space, , is looking for this capital and needs it.
And we try to be as competitive as possible in terms of [00:12:00] presenting options. So I would invite any investor, that, that is interested in this space to at least reach out and have a conversation if for no other reason than I think we have a very unique vantage point into the industry, both on a micro level looking at company by company, but also on a macro level.
And so you're happy to explore, but. The fundraising side and, and the capital needs. It's, it's pretty much an ongoing conversation for us, even if we're not explicitly in the market. So I would encourage anyone interested to just get in touch with us.
Dan Humiston: And I wanted to make sure I made this point earlier in the conversation, but I think it's really appropriate to say it now. You've deployed a lot of capital in the industry , since your inception, given our, our listeners, an idea of how much money you've helped to generate growth in the industry.
George M: yeah, no, I mean, I would say since inception to, you know, where we are today, we've deployed over 2 billion, across the cannabis industry, and that's to borrowers in 18 states. Um, you know, obviously each state in the US is its own distinct cannabis [00:13:00] market because interstate commerce isn't allowed.
So yeah, we've been fairly active. , this has been a. Challenging year for cannabis, but there's tons of opportunity and there's a huge pressing need of for this industry to have capital. And we've just continued to find, , very strong operators, very strong management teams, and found, , good use cases for this money to help these companies scale to the next level.
Dan Humiston: That's awesome. That's awesome. Well, we're gonna have all of Bespokes , information in our show notes. So if you are interested in possibly getting a line of credit or, or talking to them about a short term loan or if you wanna talk to them about becoming a partner in their, in their operation, I'm sure somebody from George's team would be happy to speak with you.
George, this is good stuff. This is what we need to keep to get us to the next level. Appreciate you doing this. Thanks for being on the show today.
George M: Yeah,
Thanks Dan. Thanks for having me.