As a cannabis owner, you have financial challenges in the cannabis industry. The challenges of finding capital and money from the right resources can leave you with limited options. 

This is where cannabis inventory finance comes into play. The method of getting the capital you need for your inventory is more than simply getting cash to plan your next inventory sale or marketing plan. Knowing where to get the financing you need and understanding the value of your inventory can set you off on the right path. 

How can inventory finance give you what your business needs? 

We’ll answer your question by discussing how inventory finance works, types of financing, benefits, factors to consider in evaluating inventory financing options, and more. 

How Cannabis Inventory Finance Works 

Cannabis inventory financing works by obtaining capital for your inventory management process. The hardship of getting inventory for your business is daunting, and why there are some financing options to combat it.

When getting cannabis inventory finance, it’s important to know the value of your current inventory. A clear record of the quantity, costs, and inventory sold can give you an idea of your inventory valuation. We’ll dive into this next. 

After calculating your inventory valuation, you can work with your chosen financial organization to request cannabis funding for your business. 

Now, onto how to calculate the value of your inventory. 

How To Calculate The Value Of Inventory For Inventory Financing

When calculating the value, you need to conduct inventory accounting methods to accomplish it. 

1. Determine The Costing Method

The first step is determining which costing method to use for inventory valuation. The three primary methods are:

• FIFO (First-In, First-Out): Assumes that the oldest inventory items sold first, followed by more recently acquired items.

• LIFO (Last-In, First-Out): Assumes that the most recently acquired inventory items sold first, followed by older inventory.

• Weighted Average Cost: Calculates the average cost of inventory based on the cost of goods available for sale divided by the number of units available for sale.

• Gather Inventory Data: Collect information on the quantities and costs of inventory items. This may involve reviewing purchase invoices, production records, and inventory counts.

2. Calculate The Cost Of Goods Sold (COGS)

• For FIFO: Multiply the cost per unit of the oldest inventory items by the quantity sold.

• For LIFO: Multiply the cost per unit of the most recently acquired inventory items by the quantity sold.

• For Weighted Average Cost: Divide the total cost of goods available for sale by the total number of units available to determine the average cost per unit. Then, multiply the average cost per unit by the quantity sold.

These calculations can give you the value of your inventory to conduct proper cannabis financing for your business. 

However, working with a cannabis accountant expert can help identify your inventory valuation and ensure you calculate right. 

At Green Space Accounting, we provide an accurate picture of your inventory and finances at a glance. 

Now, we are going to discuss the types of inventory financing. 

Types Of Inventory Finance

There are not many options for inventory finance since that is exactly what you get from financing. 

These options include: 

• Loans: Loans are a way to get money against your inventory to supplement your business inventory management. 

• Credit Line: Similar to loans, you can get credit for your inventory by evaluating the inventory valuation. 

They all work with you to give the business all its options, but one may be best for you, and another may not work well. 

Benefits Of Cannabis Inventory Financing

The benefits of cannabis inventory financing can allow you to determine whether it’s right for your business.

Benefits include: 

• Helps Expand Product Lines: The benefits of inventory financing can expand your product lines to keep up with your existing inventory, especially as a cannabis operation. You can keep up with the demand as inventory grows. 

• Better Cash Flow: Allows you to access cash tied to your inventory, helping with cash flow and helping your business get through economic and seasonal fluctuations. 

• Lower Costs On Business: Inventory financing helps lower costs from other areas in the business.

• Structured Inventory System: When pursuing inventory financing, you can organize inventory to have a detailed inventory system. It looks better on paper and gives you a better chance of receiving finances from institutions. You can consider using cannabis inventory software to enhance your process. 

• Flexible: You can select flexible repayment and potentially customize your payment terms that depend on the finance. 

These are a few benefits you can receive when looking into inventory financing for your business. 

Factors To Consider When Evaluating Inventory Financing Options

After going through the benefits, you may be curious about how to find inventory financing options. We’ll take you through the factors of evaluating your options. 

Find A Credible Financing Source

Where you get the financing is important since many financial organizations do not specialize in servicing the cannabis industry. They should be knowledgeable and understand the compliance regulations.

Look At Interest Rates

When looking into inventory financing, you need to know the interest rates for the ones you pursue. Then, start comparing the best rates for your business. 

Review The Cannabis Loan Terms

It’s best to review the loan terms associated with the inventory financing you are getting. The terms you can look into are repayment period, payment frequency, fees, and more. Choose one that aligns with your budget and goals. 

Identify Collateral Requirements

Identify the collateral requirements of the financing option you chose. If you can’t meet your repayment obligations, make sure you have enough collateral. You can place your business in a secure and better position by understanding the collateral you have to get financing. 

Know The Cannabis Loan Amount

To get a loan for your inventory, you must know the amount your business needs. This goes by your inventory value, whether it’s a small amount or a lot. Also, make sure the lender has the cannabis funding to provide you with the amount your business requires. 

See If Financers Are Flexible

As you search for inventory financing, you should see if the lender has flexibility for repayment and payment terms. 

Quality Customer Support

Another factor in evaluation is having quality customer support to help your business if there are any bumps throughout the financing process. 

These are some of the factors to evaluate for getting inventory financing. It’s important to note that not all lenders support cannabis companies, and you should work with an expert who specializes in the cannabis industry

Essential Tips For Choosing The Right Inventory Financing Partner

When choosing a good inventory financing partner, understand essential tips to find the best one. This should be the foundation of how you look at all potential financial partners to provide you with the best decision.

1. Long-Term Partnership

Working with a lender that’s willing to build a long-term partnership can make it easy for you to do business. You won’t need to worry about verifying your business when you collect inventory finance from them.

2. Risk Mitigation

You should work with a partner who understands risk mitigation by securing you and their partnership. They must have risk mitigation strategies in place with secure protocols. Also, they should know to monitor inventory levels to minimize potential risks.

3. Scalability

The lender needs to scale with your business as it grows and meets your business operations needs. 

4. Transparent Terms and Rates

Another good tip in searching for an inventory finance partner is to ensure they have transparent terms and rates. If they have hidden fees or rates, you aren’t aware of, then it’s best to find another transparent partner. 

Whether you want to inventory financial partners for your immediate needs or work with one down the road, these tips can narrow down your search. 

Regulatory Considerations

Cannabis regulations are different in every state, making every lender use different compliance protocols for working alongside cannabis businesses. 

It’s best to work with one in your local state to make sure you and the lender are following state regulations. Unfortunately, this may minimize your options for choosing a lender in your state. 

However, if you must work with one in a state you’re not operating under, we recommend you work with one who understands the cannabis industry and has compliance protocols in place for your state. 

By familiarizing your business with the appropriate lenders, you can have a secure inventory finance partner that can help you supplement your inventory cash flow. 

Final Thoughts

There’s much to consider in searching for cannabis inventory financing that can enhance your inventory management process. 

Many lenders work with cannabis businesses and require specific verification or documentation that may be more intensive than what regular businesses deal with. 

We highly recommend you partner with a cannabis accountant to navigate the complexities of finding inventory finance for your business. 

At Green Space Accounting, we can help narrow down your search and provide an ideal route your business can go toward. This can positively impact your business and optimize your inventory management.