Regardless of size or sector, all businesses and industries need capital to grow. Adam Stettner the CEO of Fundcanna, the leading lender in the cannabis industry joins Dan Humiston to explain how they are helping cannabis companies finance their growth. He talks about the value of combining equity and debt financing and discusses some of their many financing options including, vendor financing, bridge loans, equipment financing, and cash advancements. Produced by PodConx MJBulls - https://podconx.com/podcasts/raising-cannabis-capital Dan Humiston - https://podconx.com/guests/dan-humiston Adam Stettner - https://www.linkedin.com/in/adamstettner/ Fundcanna - https://fundcanna.com/ Recorded on Squadcast - https://squadcast.fm/
Regardless of size or sector, all businesses and industries need capital to grow.
Adam Stettner the CEO of Fundcanna, the leading lender in the cannabis industry joins Dan Humiston to explain how they are helping cannabis companies finance their growth. He talks about the value of combining equity and debt financing and discusses some of their many financing options including, vendor financing, bridge loans, equipment financing, and cash advancements.
MJBulls - https://podconx.com/podcasts/raising-cannabis-capital
Dan Humiston - https://podconx.com/guests/dan-humiston
Adam Stettner - https://www.linkedin.com/in/adamstettner/
Fundcanna - https://fundcanna.com/
Recorded on Squadcast - https://squadcast.fm/
Dan Humiston: . [00:00:00] Today at MJ Bulls, we are joined by Adam Stetner, the founder and c e o of Funana. Adam, welcome to the show.
Adam Stettner: Thanks Dan. Appreciate it. Happy to be here.
Dan Humiston: Well, I appreciate you taking time out to speak with us today about cannabis Debt Financing Fund. Canada is the industry's leading source of debt funding, which until recently wasn't really a route that most cannabis companies took to grow their businesses to get started. What changes occurred to make debt funding more attractive?
To cannabis found founders or leaders than previously equity funding.
Adam Stettner: Well, I think a couple of things have happened. I've always thought that there's a place in every business, cannabis and otherwise for equity and debt. Strategic equity is amazing if you have the right partner. And the money is being used in in a way [00:01:00] that that benefits the operator, the owner, and the operator.
Equity is amazing, but equity should not be used as fuel for growth. Equity should not be used to pay bills and equity shouldn't be used as a way to churn capital expenses that turn into revenue and, and cycle through the business. Every business. Uses cash flow, et or. To operate and grow. Equity is the most expensive money there is in the sense that it's dilutive and there's no way to get it back.
In that regard, debt is inexpensive in the sense that even with the cost of capital, Provided the margins of the business support, the cost of capital debt goes away, and then so does the burden or the cost associated. So I think it was, there was always a need for cannabis as a nascent industry to have access to both equity and debt, strategic equity to get a company [00:02:00] going and partner with the.
Entities or partners. And then it, it's a natural in every business evolution, regardless of industry, that debt augment. The, the equity cycle. And for cannabis, I think it's reaching the stage where despite some of the headwinds associated with regulatory, federal issues debt will come and, and it is arriving now, the.
The acceleration of operators looking to debt is because equity has dried up. There's been a lot of frustration over, at least in the public sector valuations, but in the private sector, there are very few private investors that are looking to invest at this stage. They wanna see some yield. And so it drove operators to seek debt.
But the reality is I think debt is often the right product at this stage anyway. And so, it just happened to work out.
Dan Humiston: man, that's, I'm glad for that you [00:03:00] explained that in such detail because, . It is complicated and a lot of founders , are confused about that and I think , like you said, you can't get the equity back. It's gone once. It's once you give it, it's gone. Now when I think of debt funding, I think immediately of traditional bank loans usually backed by the S B A and but, but that's not an option because banks and SBA aren't involved.
So, Companies work with with you to help with that funding, but you gotta get your funding from someplace, and if you can't get it from the banks, where do you get your funding from?
Adam Stettner: Sure. So, I, my background is 20 years of lending both consumer and commercial. So, I've put out about 20 billion on balance sheet and, and have been, I don't speak as, as myself, an individual, but have been successful in demonstrating an ability to, to underwrite risk while.
Filling the need of the client with a [00:04:00] product that works for them. I've always said if the product doesn't work for the end user, it doesn't matter how great it looks on my balance sheet, it's not gonna go very far. So the, the trick here has always been, and I've learned over the last 20 or so years, You design a product that works for your client and if you do that effectively, ultimately it will work for you too.
That, that, to answer the question, that track record in consumer and commercial business lending gave me enough of a foundation that when this idea, and I can explain how it came to be later if you wish, but that this idea, I was able to go to friends. and raise both equity and debt. Not a coincidence that we.
Right. My equity is strategic and my debt is structured in a way that works for me and then in turn will work for my debt investors. And that enables me to not only create a foundation of the business and put the right technology in place, but also to [00:05:00] design the products that will work for the clients.
Now that debt ultimately will be a bridge where I prove concept and show that my past track record. Can be transferred to the cannabis industry by running through a few cycles of repay. So in essence, we now have a few hundred borrowers. Those borrowers as they perform over the last, let's say year and a half as they perform, I will have revenue cycles, repayment cycles, renewal cycles, that we track all of our statistics, our portfolio performance, and the like.
That will then lead me to be able to go out and get institutional capital again. They are not lending to cannabis, they're lending to a financial services entity. I am not a cannabis organization. I'm a financial services organization that is focused on cannabis, so that as an intermediary, It creates that additional step where institutional [00:06:00] Capital two me is not investing in cannabis, it's investing in my model of, of lending, but first private capital proof of concept which gave me the freedom to design product without the institutional restrictions of covenants, concentration limits, geographic restriction, and the like.
And then once I have that proof of concept, then I. Using both my track record outside of cannabis and the proof of concept within, I'm able to go and look at debt funds, institutional money, and in some cases even banks that will bank cannabis but not lend to cannabis will have an interest in servicing someone like me.
With a track record that knows how to measure at scale and deploy at scale money in a way that traditional banks cannot.
Dan Humiston: That makes a lot of sense. You mentioned products, so when you've refer to products, you're probably like equipment financing like [00:07:00] line of credits are, are at least some of the products that you have available.
Adam Stettner: Yeah, so, so cannabis is, and I spent a fair bit of time studying and trying to learn. And what I'll tell you, Dan, is I'll always be a student and always looking to learn. In other words, I'm saying over the last two years, I haven't learned all there is to learn. But what I did learn was cannabis has unique needs throughout the supply chain.
You have cultivators, manufacturers processors, distributors, retailers. You have the ancillary. Companies and infrastructure to support that supply chain. And at each stop in the supply chain, there are different needs. So, for example, a cultivator, if they have an indoor grow versus an outdoor grow, they'll have different timelines from LA outlay of capital to a revenue cycle.
and that timeline may differ dramatically, let's say from the need a distributor has or a manufacturer has. And so we've designed products to make sure that we're able to support all the different [00:08:00] segments of supply chain and the ancillary providers that support them. So to answer your question directly, we do vendor finance as a product among the more popular products that we offer a lot of interest, it's.
North of 50%, not much more. But, but more than half of the money we deploy, we're providing to third parties. In other words, on your behalf, if you are, let's say a manufacturer on your behalf, we will pay your vendors This way because everything is c o d in this industry, we will pay your vendors on your behalf and then give you terms that your vendors can't afford to give you because they need the cash flow in order to operate their business.
So what this industry was really missing was the infusion of money that. Freeze up. Everything is locked because it's all c o d. It's hard for individual operators to grow when they're on this treadmill or vicious cycle of cash outlay to [00:09:00] receive materials then. , it may take them five months before that outlay turns to revenue.
Well, in order for them to grow, they need to place larger orders, but they're waiting on revenue. So if we come in and we lay out the capital on their behalf, it enables them to free up cash flow, buy either more or do things over that period of time where the other money would've been sitting.
Dan Humiston: Mm-hmm.
Adam Stettner: And then we also they have a repayment cycle with us, which allows micropayment. I like real world examples. You are a manufacturer and you're going to be buying $200,000 worth of flour in order to turn into crude oil. When you do that, your, your manufacturing process, let's say is two and a half months. You'd have to lay 200,000 out manufacturer.
Lab test package, distribute. Then you get paid all in. Let's say the process [00:10:00] is four months. , we can lay out the full 200,000 today, and then one week later you may make one 40th. Of a repayment. So now, instead of having to lay out and the one 40 of, I'm just using an arbitrary number of 10 months, four weeks in a month we're going to spread it out across 10 months.
We'll always give you extra time when you. , you'll make these payments weekly. Now you get paid in month four or five. You have the option to pay us back anytime you want and only pay for the time used. So in essence, you're controlling not only the inflow and outflow of capital, but the cost of capital associated.
So unlike traditional bank lending where you may have prepayment penalty for us, going back to the concept of designing product unique for the. We wanted to create the liquidity that the industry needed without the penalty of a fixed cost or a prepayment penalty. [00:11:00] So the liquidity is there, and then as soon as there's a revenue event, you have the option to either go full term or to pay off early and pay only for time used.
And then in theory, you could start the cycle over again, and then that debt becomes a line item. in the margin associated with that tranche of production. So you've got your expenses, you've got your revenue. If, if Funana can be a line item that enables you to free up capital and grow and it works within the margins, then it becomes a synergistic in a lot of.
Dan Humiston: Yeah, that makes a lot, it makes a lot of sense. And again, I I, I appreciate the, the additional context because that makes, that makes a big difference. Anyway, before we run out of time, I do wanna talk because a lot of the, our listeners are investors. You mentioned that your goal eventually you'll be working with institutional groups to, to add additional funding.[00:12:00]
Will there be opportunities for smaller investor family offices? And that and such to participate in this.
Adam Stettner: So there, there's there's always potential. What I would say is we built a syndication platform now that was more intended for institutions than it was individuals in the sense that from a regulatory standpoint, bringing in money from individuals is a lot more complicated than working with institutions.
But we built technology, again, calling on what I know from prior. Lending businesses I've started, that enables us to syndicate capital from multiple sources. And it, it creates the diversity within a portfolio rather than investing in a single asset. If we were to. Bring in, let's just say arbitrarily a hundred thousand from an institutional investor.
We could spread that out across 50 deals. It may be that we're funding 50 deals at a hundred thousand each, but we literally put [00:13:00] 2% of their money into each of those 50 deals. thereby giving them yield that is spread across 50 unique fundings. And then all of that is available through login into a visual dashboard that shows portfolio and aggregate yield on the portfolio, pacing performance of those assets, geography, segmentation, et cetera.
And then rolls it up into one line item that shows overall how that, quote portfolio is performing. There may be a time in the future where we are open to do that, but again, it requires a lot, much more in the way of Making sure we're compliant from a regulatory standpoint than if we're working with institutions that do this for a living.
, and ironically, the, some of those institutions are banks that have expressed interest this has always been the case, Dan, and it's amazing. Traditional business is only approved by the banks that service them at a rate of [00:14:00] 20 to 25% in a normalized economy. So forget recession.
In a, in a good economy, the approval rate's 20 to 25%, which means they're underbanked cannabis. The approval rates are close to zero unless there's real estate involved. And so the idea here, Banks can still invest in their depositors without having to build out the infrastructure to put the money out.
We, we are expert, we've underwritten millions of commercial files outside of cannabis, so we can use our technology and our experience to streamline the process to service at the highest level the cannabis industry. But we built the platform to enable the banks to still assist in servicing those depositors without having to do any of the work.
Dan Humiston: Yeah, that, I mean, it's a great setup and I, I love to see that the dashboard sounds, that's gonna be really a game changer, I believe. We're gonna have all fun, fun Canada's [00:15:00] information in the show notes with links. And so if anybody has any questions for Adam or anybody on Adam's team, I'm sure he'll be available at or make somebody available to speak to you and talk to you about.
Possible f funding your company's growth. Adam, I wish we had more time. We, this has been really insightful and I, I, I may have to have you back cuz there's a couple points on here that I'd like to really take a deeper dive on. So let's think about that in the future, be having back on the show.
But for now, thanks again for doing the show.
Adam Stettner: My pleasure and I, I'm happy to come back anytime.