Cannabis Equipment Leasing- What You Need to Know


Cannabis equipment leasing is something that many businesses need to look at when starting out or if they are planning to grow the business. Leasing equipment may be required due to reduced capital, cash flow, or if a business needs to know if a particular piece of equipment suits their needs before buying it. All are good reasons to lease equipment as a cannabis company starts up or wants to grow.

Leasing Equipment

Many companies in most industries in the US lease equipment at some point in time. Leasing stipulates that a business does not own the asset or equipment they are renting, but instead they pay a specific rate for a set period. In this rental period, the company can use the equipment as if they owned it. There may be certain stipulations within the lease contract around use, repairs, and returns but generally, leasing equipment refers to full use of it.

Starting in the cannabis market, companies should research which equipment can be leased rather than purchased. Finding quality machinery to lease can help with many financial aspects. Leasing does not have to be a permanent way of using the equipment, but it can be beneficial when funds are lower.

Reasons for Leasing Cannabis Equipment

Cannabis businesses often have more financial burdens than other mainstream companies due to extra fees, licenses, insurance, and legal costs. Leasing equipment is a good financing solution, as it can take some of the cost burdens off of an equipment purchase that can be overwhelming. Leasing can help with lowering overhead costs and possibly deferring tax payments. A cannabis business can also write off an equipment lease payment: a company can get some tax benefits that do not happen when they buy the full equipment cost. There is also the option of financing various lengths of time and the flexibility of payment plans that can help.

The ability to free up money and get new equipment is a good reason to lease when you are just starting out. It also opens up the option of being able to upgrade equipment without an investment of capital more than once. There is more money for other requirements of the business. The ability to lease can be applied to the smallest item up to the largest. Businesses can find grow lights, packaging needs, HVAC as well as CO2 extraction needs, and more.

Other items may not be as obvious when it comes to leasing and that is things such as security systems, sales, growth, and production software. There may be a need for automobile and truck leases as well. Making a list of all equipment needed and then making multiple inquiries should get companies a competitive leasing price on most items.

Financing

Overall, the equipment and their costs can be overwhelming. Leasing can relieve some of that burden. There are some significantly good deals in the market such as a lease for $1 after so many months of payments or no down payment or deposit needed. If the business’ credit is good, then this may be one of the options worth looking at when deciding which companies to use.

When you decide to go with cannabis equipment leasing, it is important to always know the terms of those leases. It is also important to know what financing options are available and down payment options that can help reduce monthly payments. Banks might offer some types of financing but due to legalities around cannabis companies, they tend to stay away from these types of business. Until cannabis is legal federally in the US, this is going to be a difficult area to finance. There are other options though such as companies that do leasing directly and lenders that are looking to support cannabis businesses.

Achieving a good lease contract and financing allows a company to loosen the cash restrictions and give more positive space on the balance sheet. There will be money available that otherwise would have gone into capital outlay. The company has more cash for R&D, labor, and testing.

Be Prepared

When beginning the process of leasing equipment, a business will have to provide relevant financial information about the company to the company it is leasing equipment from. Have bank statements, tax files, personal financial statements along with the company financials to go with the credit application. A credit score is also important, so the company can get as much financing as possible and the best terms allowable.

Along with the financial preparation, a business should make sure their accountants and lawyers are involved, if the leasing contracts revolve around significant amounts of money. The fine print on contracts is extremely important.

Looking for Equipment

Cannabis equipment leasing can be found in most states in the US and many provinces in Canada. Before venturing into contracts and legalities, companies should make sure that the rules and laws that are binding with leases of cannabis equipment work for them in their specific location. There may be laws and regulations in certain areas that dictate the length of leases, type of equipment allowed, as well as issues with the security interest. Security interest, otherwise known as collateral, might be required if a business is leasing large and expensive equipment.

Final Thoughts

As the cannabis industry and its various markets struggle to find continuity amid new laws and regulations along with the 2020 pandemic, they are looking for ways to make their money go further. Leasing equipment is a good option when stretching the distance that cash will go. Finding good leasing contracts that are fair, have a good monthly price and low-downpayment can make a significant difference to a cannabis company’s bottom line. Having contracts for lower-cost leases can help weather any marketplace downturns or insecurities and certainly ensure cannabis companies can sustain themselves as they start to grow further.

Olivia Solero

Olivia Solero is the Co-founder of Cannabis Stack. Olivia has an unusual blend of creative thinking and the ability to put that thinking into effect. She likes to write; loves to edit; she knows how to lead, follow or get out of the way; she is good with a buck and wicked smart when it comes to data.


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