Financing a start-up is a challenge. Always. As an entrepreneur developing a business, when is the right time to stop “self-funding” and move to bring in investor dollars? And, what share structure works in order to draw in more significant investment in a second or third round of financing once revenue has been established? Giving away too much on the “pre revenue” front end can limit what you might be able to raise later, once the business is producing revenue. And then there is the question of who do you want to partner with and why? And what do THEY want!? … rocket science? Not really …. stressful … yes. Especially when you are ready to go!

Taking a look at the cannabis landscape today, a significant and crazy amount of capital is being invested. One would think that a well thought out, pre-revenue start-up w/ proven regulated leadership would attract some attention. Bricks + Bloom has certainly done this; however, “attention” doesn’t pay the bills. The challenge is always converting the curious and interested, into fully invested shareholders, and without revenue coming in (proving concept), it’s doubly difficult.

A common phrase in the venture capital world is “you have to kiss a lot of frogs before finding your prince” … and it couldn’t be more true today, when raising capital in the retail cannabis space. It is with chap-stick in hand that I’ve come to realize I’ll need to kiss a lot of frogs. Having spoken with a multitude of venture capital groups and many interested angel investors (some of whom I have turned down for a variety of reasons, but that’s for another blog) it continues to be an interesting, if not frustrating process. Raising capital is certainly not new to me but each industry (especially an emerging industry with such “high” expectations … you see what I did there?) brings with it a different investor DNA. My take away conundrum has been licensing. Each call I take asks the same first question … “how many licenses are currently underway”. Well, I made a conscious decision to stop “self-funding” and build a small war chest that would look after license fees and potential commercial space carrying costs prior to moving forward with license applications (while undergoing a potential 6 month license application process, leases need to be payed!). Nobody said it would be easy and these are just some of the difficult decisions I have been faced with.

But, let’s get back to the VC groups for a moment, and their desire to see licenses underway. I get it. One would like to see substantial and positive movement before committing investment dollars. It’s a catch 22 situation for sure. In this particular scenario, to be a more attractive investment, one needs licensing underway, which, here in British Columbia, means having executed commercial leases in hand. At a cost of approximately CDN $50K per license (that includes up to 6 months of commercial space carrying costs), a start-up needs capital.

Along with raising capital for licensing, etc., I’ve ruminated on the actual commercial space game. It’s my belief (based on my 20 years of regulated retail in Canadian and US major markets) that retail cannabis will quickly turn into a real-estate game. He or she who secures the best location(s) will quickly become the market gorilla. Everyone has heard ‘location, location, location” … and I believe this to be true. However, in this emerging industry, the little guy on my shoulder has whispered a few times … “maybe just get into the market and worry about the best location later”. I’ve launched in both scenarios (terrific location w/ high traffic vs. terrible location, but “in the game”) and invariably, the “best location” has continued to be the right move. When you are like me though, and impatient about launching and building out … it becomes a mental battle.


Originally published July 5, 2019 on Brad Klock’s personal LinkedIn.

Brad Klock

Brad Klock

President & COO of Legacy By Ross