East Fork Cultivars, a small, family-owned and operated craft hemp and cannabis farm in Takilma, Ore., has been raising capital through a network of small lenders mostly consisting of 30 or so close friends and family members.
But in the age of COVID-19, when personal finances are particularly tight, the company is looking to new sources of debt via Steward, a crowdsourcing fundraising website made specifically for small, sustainable farms.
Contrary to the Kickstarter model of crowdfunding where “investors” are purchasing advanced orders of products without getting their money back or an equity stake, Steward acts as a mechanism for individuals to invest as little as $100 into “human-scale farms,” according to Steward’s website. Steward investors can either receive an equity stake in the farm or receive interest payments on the loan they provide—it all depends on the type of debt the given farm is looking to raise.
East Fork Cultivars currently is conducting its first raise on Steward, a “modest” amount of $50,000, according to Mason Walker, CEO of East Fork Cultivars. “Mostly it’s the proof of concept, just to see if people would have interest in it,” he told Hemp Grower in an interview.
The Oregon company mainly raises funds through unsecured debt—loans that are not backed by equity but yield interest rates. “That has allowed us to keep tight ownership control,” Walker said. Through its network of close investors, East Fork Cultivars offers an average of 8% APR on investments. With Steward, the hemp farm is offering a 10% annual return and plans to use the capital to expand the company’s breeding program, fund organic certifications for its entire hemp supply chain, and help the team expand into the retail vertical with its certified-organic hemp products.
There are different requirements and conditions for different types of equity, including SEC filings and increased diligence for equity investments. For farms looking to raise funds, “figuring out what type of capital you want is the best place to start,” Walker shared. “Do you want to pay a higher interest rate for unsecured debt that has fewer restrictions or balance sheet implications, or do you want to get cheaper debt that’s secured against your assets?”
For East Fork Cultivars’ executive team, maintaining ownership is the highest priority, leading them to have to make monthly debt service payments to the tune of roughly $30,000 (“a bit on the high end for what we’re comfortable with,” Walker noted.) Regardless of the type of capital a company is looking to raise, “Steward has built their platform so you can raise any type of money. They make a custom agreement for each deal.”
Walker not only expects Steward to help the small farm find new investors, but also help the company manage its current investor pool. Managing payments and balance sheets “started to get a little tedious,” Walker detailed. “Steward’s tool gives us a couple things that allow us to manage our existing friends and family lenders: We can set up auto repayments and we can give them tax documents in a more automated way.”
Also unlike Kickstarter, farms don’t need to meet their target raise to access the funds. Likewise, if a campaign’s raise greatly exceeds its goals, then funds can be returned to investors without saddling the farm with loan payments it cannot meet.
“Steward is trying to be the one-stop shop for small, values-driven farms that are striking out finding funding with traditional sources of capital, but that have something special going on,” Walker said.
“I think that raising capital is going to be just a bigger and bigger and bigger and bigger issue in cannabis, especially as existing adult-use markets mature a bit, and as new restricted states come online and as the hemp industry matures, as well,” he said. “If I were talking to a young cannabis farmer right now, I would encourage them to up their finance understanding or partner with a CFO-type person, or make sure that they have a really good CPA strategist or attorney strategist because understanding finance is just going to get so important in this space. The faster that small operators can understand their financial strategy, the better.”
Published at Mon, 20 Jul 2020 14:42:00 +0000