Cannabis Equipment Leasing 101
January 8th, 2018
What it means to lease
According to some figures, 8 out of 10 businesses across the United States lease at least one piece of equipment. Leasing means that you won’t own the assets or equipment in question, but rather you would pay a pre-determined rate for the duration of a time, during which you can make full use of the land or equipment that you are paying for.
As a marijuana business, you might be interested to hear that many of your business’s operating assets can be leased, instead of bought. For a marijuana dispensary, this can include the land you operate on and the machinery you operate with.
Leasing land may be preferable when you do not want to be subject to land tax that property owners themselves are responsible for (though it’s always possible that tax costs will be passed down to your company as the one that is leasing the equipment).
Leasing vs. Buying
As a marijuana business, leasing can help lift the financial burdens that come with starting your own business. This can include reduced costs and deferred tax payments. By writing off lease payments, you may enjoy some tax benefits that would otherwise not be available for your business. Financing may be available, as well as flexible payment schedules.
Freeing up cash and obtaining new equipment could be a reason why you would want to lease equipment. Being able to upgrade your equipment as you see fit can feel liberating, and the extra cash lets you spend money on the kinds of stuff a legal cannabis business needs to spend their money on. There are sorts of equipment you can lease instead of buy, including LED / grow lights, packaging lines, automation equipment, HVAC systems, and CO2 Extraction tools and related equipment. And don’t forget other essentials that your cannabis company will require, including security systems and seed to sale tracking software and hardware. What if your cannabis company uses motor vehicles, such as cars? Are you a cultivation or retail-focused cannabis businesses, or a bit in between? This will determine what kinds of equipment you need to lease.
These costs can add up, so leasing may be for you. Some companies even have the option to purchase the equipment you lease for only $1 or so after a pre-determined numbers of months have elapsed on the lease. Usually this period is around 24 months, but it may be adjustable by the company you are leasing from. Some even have a “no down payment required” policy – though often this will require you be screened first.
You should also know the terms of your leases, and what kinds of financing is available for you to consider. Banks may offer financing, but know that they will mostly shy away from helping cannabis businesses. That’s because cannabis is still illegal federally in the United States, and even though medical marijuana is currently legal in Canada, banks will often not keep open accounts that have “marijuana” or “cannabis” in their name. Therefore, you may have to obtain financing from a source that is not a traditional bank.
Why else would you want to lease? You may also want to make room in cash flows and balance sheet, a side effect of freeing up cash that you can now spend on what your company needs to operate. Without having to first buy equipment at a large cost, you can now spend money on other facets of your business, such as human labour, software.
In order to be able to lease equipment for your legal medical marijuana , you may need to provide financial information to the company that is offering to lease you equipment. You may need to provide bank statement, tax returns, personal financial statements, company financials, and/or a credit application. Your credit score will be an important determinant of how much financing and the terms of such an arrangement.
There are many pros and cons to leasing equipment and real estate property. You may be seeing a benefit tax-wise by leasing, but there may be some additional tax consequences to leasing instead of owning equipment. Always speak with a lawyer who will be able to assist you.
Where you can lease equipment
Laws vary across North America, but you can lease equipment in all 50 states of the United States of America and throughout Canada. There may be laws in your jurisdiction mandating certain rules, or dictating that leases be of a certain length of time, or that set out in what circumstances a security interest is granted or not. A security interest is another name for the collateral you may be required to put up when you lease equipment from a company.
There has been a bourgeoning, legal cannabis industry that has been popping up throughout North America. There are companies that will lease you the land and equipment you need to operate your legal medical marijuana company.
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