How has cannabis financing changed in 2024 and 2025?

Cannabis financing has undergone a fundamental structural shift. In 2024, approximately $1 billion in new capital entered cannabis — but roughly 90% of it was debt rather than equity, and about 80% of that debt was refinancing of existing obligations rather than genuine new investment. The speculative venture capital and private equity era that defined cannabis's early years has effectively ended. As Peter Su describes it, the investor appetite has shifted from 'growth-focused and speculative and sort of exciting' to 'efficiency and compliance and resilience.' Higher interest rates gave investors a 5% risk-free alternative, raising the return bar for cannabis equity to a level that most operators cannot credibly demonstrate. The result: debt is the dominant funding vehicle, it is expensive (private lenders are pricing in the mid-to-high teens), and the primary use of available capital is refinancing existing debt rather than funding growth.

Why is IRC 280E tax compliance essential for cannabis businesses seeking financing?

IRC 280E disallows ordinary business deductions for companies trafficking in Schedule I or II controlled substances, resulting in dramatically elevated effective tax rates for cannabis businesses. Some operators have deferred 280E tax payments expecting federal rescheduling to retroactively eliminate the liability. Peter Su explains why this strategy makes them unlendable: the federal government holds a priority security interest in any business with unpaid tax obligations, subordinating any lender's collateral position. A cannabis business that has not paid two years of taxes is not a viable loan candidate regardless of its operational performance, because the government takes precedence over private creditors. Current 280E compliance is a non-negotiable baseline for any cannabis business seeking debt financing in 2025.

What financial practices do cannabis lenders look for?

Lenders and investors in the current cannabis market demand demonstrated operational history rather than projected market potential — 'we lend on history, we don't typically speculate.' Beyond 280E compliance, cannabis businesses need genuine cost accounting infrastructure: Mike Goral observes that most cannabis operators price products by benchmarking competitors rather than calculating actual cost of goods sold, leaving them unable to determine whether they are actually profitable at current prices. Lenders also look for proper financial governance with clear accounting work papers, transparent documentation, and back-office operations that allow outsiders to assess true financial performance. The profile of an attractive cannabis acquisition or loan candidate in 2025, according to Mike Goral: operating at a profit, run efficiently and well, with owners who are not extracting excessive personal compensation from the business.

How should a cannabis startup approach building its capital stack?

Peter Su's advice: the foundational capital of any cannabis business must come from the founders themselves. 'If you've got a startup business — and this is true of any business, not just cannabis — that foundational piece, when you think about the term capital stack, that foundation really is on you. If you don't have the capital to start that base foundation, there's not going to be a business.' External capital — whether debt from a cannabis-friendly financial institution or equity from a private investor — requires a demonstrated foundation before it will be available. For early-stage cannabis businesses, the priority is establishing the operational and financial infrastructure that makes the business lendable and investable: regulatory compliance, proper accounting, operational efficiency, and 280E tax compliance. These prerequisites are not optional once the business seeks external capital.

What is the current state of banking competition for cannabis businesses?

The cannabis banking landscape has improved meaningfully in terms of competition among financial institutions. Peter Su notes that prospective cannabis banking clients now 'have multiple options' and are actively 'shopping' among different institutions — a significant change from earlier years when cannabis businesses were fortunate to find any willing bank. This increased competition has modestly improved terms and service quality for cannabis banking relationships. However, the overall volume of banks participating in cannabis programs has been declining as institutions that built programs during the early speculative era have found them difficult to sustain profitably amid compliance costs and market volatility. The result is a market with more options for well-qualified cannabis businesses, but higher qualification standards and continued challenges for smaller operators or those without established compliance infrastructure.

How does Qredible's compliance certification help cannabis businesses access financing?

In the current financing environment — where lenders demand demonstrated compliance, operational discipline, and financial governance — Q-Certification addresses the verification gap between what cannabis businesses claim about their compliance posture and what financial institutions can independently verify. Q-Certification is a living compliance credential backed by continuous monitoring through Q-Audit, automatically revoked if compliance breaks — giving cannabis-friendly financial institutions a verified, real-time signal of compliance status rather than a self-attested claim. For cannabis businesses seeking banking relationships or debt financing, Q-Certification demonstrates the systematic compliance management that both Peter Su's banking underwriting process and Mike Goral's due diligence practice identify as prerequisites for capital access in 2025. It converts compliance from an assertion into a verifiable, continuously maintained credential that financial partners can assess objectively.

Show Me the Money: How Cannabis Financing Changed from Equity to Debt in 2025

Category: Business Learning Center Videos

Author: The Qredible Team

Date: June 25, 2025

The days of easy venture capital and speculative investments in cannabis are over. In their place stands a more mature, demanding financial ecosystem that rewards stability and compliance above promises of explosive growth.

During a recent Qredible Live Broadcast, Peter Su, Director of Specialty Banking for Hanover Bank, and Mike Goral, Partner in charge of the cannabis and hemp practice at Armanino, shared critical insights on the cannabis financing shift and where capital is flowing in 2025. Their discussion revealed how funding strategies have fundamentally changed and what businesses must do to secure capital.

From Growth Hype to Financial Discipline

The cannabis industry has experienced a remarkable transition in investor sentiment over the past few years. As Peter Su pointed out during the broadcast, "Originally there was this exuberance... the initial appetite was really growth-focused and speculative and sort of exciting. Now it seems like it's shifting to efficiency and compliance and resilience."

This change reflects broader economic realities and the maturation of the cannabis market. With higher interest rates and safer investment alternatives available, capital providers are demanding more from cannabis businesses.

The Dominance of Debt in Cannabis Funding

Perhaps the most significant cannabis financing shift has been the near-complete transition from equity investments to debt structures. According to Peter Su, "In 2024, just under a billion dollars worth of 'new' capital came into cannabis. About 90% of that was debt, and about 80% of that debt was earmarked as really refi."

This means that even what appears to be new capital is often simply replacing existing debt arrangements. True new investment has become increasingly rare, especially in established markets like California, where tax revenues have declined by 11% year-over-year.

Why Debt Has Become the Primary Funding Vehicle

Several factors have contributed to debt becoming the predominant funding mechanism:

Higher Interest Rates Create Investment Alternatives

"When interest rates were zero and you had to take some risk in order to make a return on your money, it's easier to find investor capital," explained Peter Su. "When you can safely put your money in the bank and essentially without taking risk and get 5%, as a possible investment or someone seeking investment, you need to demonstrate that this investment opportunity can do better than that."

Operational History Now Matters More Than Potential

Lenders want to see proven performance rather than speculative projections. As Peter noted, "In lending, we lend on history. We don't typically speculate."

Cannabis businesses now have several years of operational history, allowing lenders to make more informed decisions based on actual performance rather than market potential.

The High Cost of Available Capital

While debt capital is flowing, it comes at a premium. "It's expensive. You're talking about the private lenders are at the teens," Su mentioned. "It has come down a lot over the years, but it's not cheap. It's sort of like putting it on your credit card—actually worse, I think."

Red Flags and Deal-Breakers for Cannabis Financing

The broadcast highlighted several issues that immediately raise concerns for potential lenders:

Tax Compliance Issues

Mike Goral shared a story about cannabis companies avoiding taxes in anticipation of regulatory changes: "We're waiting with 280E... once it gets rescheduled, then we'll back file, and we won't have to pay 280E."

Peter Su explained why this approach is problematic for financing: "You're also telling me you haven't paid taxes in two years, and how am I going to lend to an entity that hasn't paid taxes in two years? Because the government takes precedence over me."

Lack of Financial Governance

Many cannabis businesses operate without proper financial controls or accounting practices. As Mike Goral observed, "No one does cost accounting in this industry. What they do is go across the street or the nearby dispensary and see what they're selling their flower for. And if they're selling it for $20 a jar, then they're going to sell it for 18. They have no idea if they can make money selling that product at $18 a jar."

Advice for Cannabis Businesses Seeking Capital

The experts offered several recommendations for cannabis operators looking to secure financing in the current environment:

Build Your Foundation First

Peter Su emphasized the importance of self-funding in the early stages: "If you've got a startup business—and this is true of any business, not just cannabis necessarily—that foundational piece, when you think about the term 'capital stack,' that foundation really is on you. If you don't have the capital to start that base foundation, there's not going to be a business."

Establish Solid Financial Practices

Mike Goral stressed the importance of back-office operations: "Spend more time in the back office and making sure that their accounting work papers and documentation is all clear. Many of these companies are being run not knowing if they are doing well or not doing well."

Focus on Efficiency and Profitability

According to Mike, acquisition targets are typically "those that are operating at a profit, those that are run efficiently and well, and the owners are not going out buying Ferraris."

The Road Ahead for Cannabis Capital

While the short-term outlook remains challenging, there are signs of potential improvement. Both experts noted that banking services for cannabis have become increasingly competitive, with Peter Su sharing that prospective clients now "have multiple options" and are "shopping" between different financial institutions.

Looking ahead, the cannabis financing shift will likely continue to reward businesses that demonstrate financial discipline, regulatory compliance, and operational efficiency. For companies that can adapt to these new realities, capital will remain available—albeit at a higher cost and with more stringent requirements than in the industry's early days.