And lately, my inbox has been blowing up with questions from canna-curious entrepreneurs who want to know where they should even be starting.
If you’ve been romanticizing about a future in cannabis, stay tuned because I’m sharing five things you’ll want to think about before you get attached to the idea of a cannabis company.
So I hear this every day from my listeners and subscribers. You’re intrigued! You’re excited! And you’ve got major FOMO from the outside looking at how fast the industry is growing. Like a moth to a flame entrepreneurs of all shapes, styles, flavors, and colors, from cultivators to distributors to tech experts and yoga instructors are drawn in by the prospect of a brand new, and tantalizingly controversial industry.
Even with the odds stacked against it federally, the cannabis industry is exploding into the mainstream. According to one analysis by New Frontier Data, the U.S. cannabis industry was worth $10.4 billion back in 2018. And that value is projected to grow to $26.3 billion by 2025. Already, the cannabis industry has directly created hundreds of thousands of jobs, not counting those indirectly created by support businesses like professional advisors or marketing companies. What I’m getting at here is that there is a place for you if this is where you want to be.
But that doesn’t mean it’s going to be easy. Between the growing pains and the legalities, the cannabis industry is complicated, to say the least. And there are a lot of variables you’ll want to consider before you jump in with both feet. So, hopefully, this episode will provide a bird’ s-eye view of some things you should know before launching yourself into the beautiful chaos that is the cannabis industry. Whether you’re planning on opening a dispensary, obtaining a cultivation license, or starting an ancillary business like me, here are five things you’ll want to consider BEFORE you get attached to the idea of a cannabis company.
1) HAVE A UNIQUE VALUE PROPOSITION
You’ve heard me say this before, but all great business starts with a unique idea that fills an unmet need. To reduce overwhelm, the very first thing you’ll want to do is decide which sector you find most appealing. But I want to caution you here, don’t allow yourself to be seduced by shiny things. When someone thinks about the best business to start in the cannabis industry, often, the first thing that leaps to mind is, “I want to own a dispensary, grow operation, or extraction lab.” And the logic is always I’ve done it from home on the down-low (let’s be real here) so how hard can it be? Besides, that’s where I’ll make the big money.
I can’t even tell you how many times I’ve heard this mentality. The cold hard truth is that these types of businesses often have the tightest profit margins making them among the most risky. The issue here is supply and demand. As legal cannabis continues to grow in popularity, the price will continue to decrease, leaving many grow-ops and dispensaries in a neverending race to the bottom for the most attractive pricing. Not only that, but they’re hit hardest with state rules and regulations.
Not to mention the fact that thanks to federal prohibition, many banks still refuse to work with businesses in this sector of the industry. So, rather than keeping your earnings in a safely secured bank account, many cannabis business owners are forced to deal exclusively in cash, which is downright dangerous and highly inconvenient. Though some have been getting around this issue using costly private banking alternatives or cryptocurrencies.
While this is sure to change eventually, it means that, for now, you also can’t qualify for a traditional bank loan, so you’re going to need to fundraise enough capital without the traditional loan assistance typical of non-cannabis companies. And, in some cases, states want you to prove access to upwards of $1 million in available cash to obtain a license for cannabis touching companies. (which, once again, you will need to find someplace creative to keep) I know it’s totally crazy!
But the good news is that the cannabis industry is much more than just grow operations and dispensaries. I encourage you to look beyond the obvious and get creative! As a general rule of thumb, anything that requires you to actually touch the plant is going to be a little more costly and regulated. But so many new business owners get distracted by the shininess of cultivation and dispensaries that there is a lot of wiggle room in alternative sectors for new companies.
Take edibles, for example, and I’m not talking about cookies. Keep your ear to the ground for up and coming health trends and try to fill in a gap for your niche. Think vegan, gluten or sugar-free, paleo, Ayurvedic, look for an underserved corner of the market and plant your flag before someone beats you to it. One of my Elevated Advocate’s Lit Dip Guacamole has this on lock. I mean infused guacamole as a celebration of diversity and cultural heritage in the cannabis industry!? Genious! And you better bet they staked their claim to that product nice and early.
If you’re looking for something with relatively low overhead, consider something a little less traditional. For example, a good friend of mine just started a Bud and Breakfasts which is basically a cannabis-friendly Air B&B. She offers guided tours of the local cannabis shops, in-home cooking classes, and she even has a massage therapist friend who can drop by for a hot oil massage with CBD. There are some regulations around this sort of thing, and you’re going to want to check the laws in your state and county. But she is able to do this legally in her basement apartment, and she’s been making a pretty penny.
Just bear in mind that, the closer your proximity to the flower itself, the more cost and risk you assume as a company. This is why ancillary businesses are doing so well—they do have their stumbling blocks to be sure (for example, even as a cannabis educator and consultant, I am regularly turned away from banks, and I do get rejected on a regular bases for things like Facebook ads which can make marketing extra tricky), but I’m also not burdened with costly licenses or higher than usual taxes which is pretty darn cool if you ask me.
From head shops and health coaching to professional training and consultancies —the list is endless, and so are the opportunities. If you’re feeling stuck, here’s what I suggest. Bust out a pen and paper and write down what’s most important to you when it comes to starting a business. Is that low overhead and start-up costs? Less red tape? Higher profit margins? An expedited timeline to entry? When you know what your non-negotiables are (for example, you know that you want to start your business this year for less than $50K and you don’t want to deal with licensing), It’s going to make choosing your industry sector much easier.
Then, when you’ve landed on a business idea you love, do your homework and make sure that this concept is legally viable and offers a unique solution for your niche. All too often, a concept is exciting but cannot be supported within the legal framework (so put on those reading glasses or budget for a good lawyer), and if you do find a solid idea, you’ll want to find a way to really differentiate yourself from the competition.
Take cannabis cookies, for example. *Yawn*. Boring. That may be an easy move for you, but it’s been done to death, and you better bet someone else behind you is going to be just as lazy (I’m not trying to hate on cookie makers out there if you’re listening, but for real, I hope you put your creative spin on things). Even if you’re the very first cookie maker in your state, you can’t bank on that ‘first mover’ advantage. For long-term scalable success, a company has to be able to withstand cost, regulations, creativity, and a myriad of other business factors in such a rapidly changing industry.
Starting a business in cannabis is FULL of curveballs and roadblocks, so be sure to put in your due diligence to make something that is both practical and unique. If you’re still feeling stumped after listening to this podcast,” Marijuana Business Daily” put out an awesome little chart showing the profitability of each type of cannabis business that you might want to take a look at. I’ll link that for you in our show notes if you want to take a peek.
2) UNDERSTAND YOUR CUSTOMER BASE
And this kind of dovetails off of the last one but, once you have a winning idea, you will need to consider your consumer base and their very unique unmet needs. Here’s the deal, the cannabis industry is unlike any industry you have ever worked in, from the ridiculously complicated regulations, supply chain management, banking, taxation, advertising, and stigma you better believe that you are going to be burdened with annoying circumstances that will derail you, jeopardize your profits, and pull your focus away from core aspects of your business. No matter how I sugar coat it, the truth is that owning a business in the cannabis industry is harder than a similar business would be traditionally.
If you’re strictly interested in cannabis for money, I’m here to tell you that you are barking up the wrong tree. There are about a million other endeavors that will be more profitable for you in the long run with way lower barriers to entry. If you’ve been a long time listener, you already know my stance here. A cannabis business should be a labor of love. If you’re going to bend over backward to start a business in the cannabis industry, I have a feeling that you are already an advocate who genuinely cares about getting this medicinal plant to its people.
Something I need you to keep in mind is that this industry is new to everybody, and many of your potential clients have never tried cannabis before. This is particularly true if your business is Business to Customer (B2C). It’s a learning experience for everybody. So as more and more businesses (and customers) enter the legal cannabis space, your market share is going to undergo some growing pains. It’s up to you to comfort them and guide them to safety. And I don’t mean to sound too woo here, but it’s true. Not only do you have to attract new customers like any business, but you also have to ease them into the idea of using a traditionally stigmatized product, and that can feel scary.
One way to ensure that (at least this aspect of your business runs smoothly) is to master market research and get to know your niche. As my Elevated Entrepreneurs are learning in our niche Finding course this month, targeted consumer segmentation is increasingly important in the cannabis industry. When you know exactly who your ideal client is, you can better anticipate their questions, fears, apprehensions, and needs. So don’t just assume that because you love your business idea, your customers are going to feel the same way. You’re going to need to put in the research to make sure your future customers will be just as stoked as you are about what you’re offering.
Really get to know and understand them. Leverage popular market research tools to find out who’s already interested in this kind of product or service already. How old are they? How educated? What’s their economic status (can they even afford the price point you are hoping for)? Where do they live? When you know more about these factors, you can figure out where they spend their time and go pay a visit. For example, look for conferences, Facebook groups, or local events. And not just in the cannabis industry. For example, if you do decide to create a vegan cannabis edibles line, you better be hanging out at vegan events and popular hangouts in your community.
Build a relationship with your people. Get to know why this specific demographic is so interested in the kinds of products and services that you’re offering. And while you’re at it, ask them what they like or dislike about the products on the market already. Not only does this assure that you’ve done your research, and you truly know what your clients are wanting, but it means that you’re developing meaningful and authentic relationships. I’ll link them in my show notes for you, but BDS Analytics, Marijuana Business Daily, and The Archview Group are all great resources for these kinds of consumer analytics.
3) KNOW THE RULES AND FOLLOW THEM CLOSELY
The cold hard truth is that even with a brilliant business plan, plenty of funding, and excited consumers who are dying to buy what you’re offering, if you don’t play by the rules, they will find you and you WILL either get shut down, get hefty fines, and you could even land yourself in jail if you’re particularly unlucky.
To make it extra fun, the laws, rules, and regulations for opening a cannabis business are incredibly complex and confusing. For example, even as an ancillary service provider who never touches the plant, I am legally unable to use popular payment processors such as Stripe for my company. I can’t even tell you how frustrating this can be. This is why I strongly recommended that you plan to hire an experienced consultant or attorney. Get yourself someone who is well versed in cannabis already who can help you navigate the ins, outs, and loopholes to make sure your business is squeaky clean.
In most cases, both medical and adult-use businesses require a license to operate if you’re working with cannabis directly. And the kicker is, these licenses apply only in the state or county where you receive them. So if you plan to have multiple locations, or you have an online business, and you plan to offer services nationwide or globally, you’ll want to make sure that you really know what you’re up against legally.
But that’s not the only reason to make sure that you’re above board in your cannabis company. We’re all in this together, regardless of whether or not you agree with the rules as they are in your state and county. If you are irresponsible with your new canna-business, it undermines the validity of the whole industry. When businesses are performing recklessly, it hurts our reputation as a whole, and we all know that we’re still not out of the woods yet when it comes to banishing the stigma of cannabis consumption and consumer safety.
Just look at the vaping industry. Here in Oregon, it seemed like there was a vape shop on every corner back in 2018. Today, all of those businesses have closed their doors due to massive regulatory challenges. There were a number of factors at play here. But one of those factors was, no doubt, that there were a few stubborn entrepreneurs that didn’t take the time to do things right when setting up their businesses. By not acquiring licenses, using bad branding, overlooking regulations having to do with labeling, and choosing to use illegal sales channels out of disapproval for the laws, they played a huge role in the downfall of their own industry.
Part of cannabis business ownership is committing to steadfast advocacy. For the cannabis industry to grow, it’ll need to avoid giving extra ammunition to regulatory agencies and opposition groups who would love nothing more than to see us crash and burn by our own brazen stupidity. So don’t give them the satisfaction. You’re better than that anyway.
Take the time to learn the laws and modify your business plans accordingly. Now, as I mentioned a little earlier, each state has different laws, so I’m not going to break that down for you here. But I do encourage you to visit my show notes where you can find a handy state-by-state guide of the most recent regulations.
4) GET THAT MONEY
I touched on this a little earlier, and I’ve got a whole episode dedicated to this topic coming out very soon. But, as with any start-up, investment capital is crucial to getting your business up and running. As you may recall, because cannabis is still federally illegal, the overwhelming majority of banks will not allow you to open a bank account if you are connected to the cannabis industry, let alone offering a loan for cannabis companies.
In addition to this, some private investors don’t want to put their money into cannabis businesses either for the same reasons, and this applies to CBD as well, my friends. So, if you plan on founding a cannabis company, you are going to need to get creative. Depending on your business model, you may be able to continue working part or full time to save your own funds while you get started, then, of course, there is always the possibility of raising capital from friends and family.
Many entrepreneurs have also leveraged crowdfunding resources such as Go Fund Me and Patreon (for you content creators out there) successfully. And, even with the federal roadblocks, there is a growing number of private investors willing to take the risk in exchange for a good share of the rewards that many cannabis businesses have been able to achieve.
However, If you do choose to go this route, I encourage you to do your homework. Consider visiting your local small business association or looking for an online class that will walk you through the ins and outs of small business funding. You will want to know exactly what you’re getting yourself into and what to look out for if you choose to jump into a partnership with an independent investor or company.
That being said, there are a variety of options depending on where you are in the business development process, and what you’re offering. Be sure to visit my show notes and peek at the Ganjapreneur and New Cannabis Ventures links for a comprehensive list of cannabis-friendly investment agencies.
5) MARKETING IS TRICKY
Finally, as with most things in cannabis, there are a variety of no-fly zones when it comes to marketing. While there are some totally reasonable guidelines set in place by your state our county (for example, in many states it’s illegal to name your product or model your brand after items that might be appealing to children) you’re going to come up against a variety of annoying double standards that specifically apply to cannabis companies.
As you likely saw with the great Superbowl debacle of 2019, even if you have the budget for it, don’t be expecting to make commercials for network TV. Many communities will still not sell billboards to cannabis companies. And there are still quite a few holdouts when it comes to news outlets and magazines.
In my own experience online (and remember, I don’t even touch the plant or offer a physical product of any kind. I’m strictly education with my Sativa Science Club offerings), I’ve been denied the ability to share events or list ads on Facebook. I’ve been shadowbanned on Instagram. And I’ve seen the entire cannabis industry and all of its related posts disappear from Pinterest in the span of a week. To this day, if you visit Pinterest and search for the word marijuana, you will be greeted with an ad for a rehab clinic at the top of an empty screen. If you search for the word “cannabis,” you will find only Spanish keyword matches that have not yet been flagged by their admin. It’s no secret that they are actively targeting and hiding posts by cannabis companies.
The truth is, while it’s not impossible to market your cannabis business, they don’t make it easy. So you’ll want to consider how you’re going to get the word out and plan to budget your time, your money, and your content accordingly.
So there you have it, five key considerations before you start your business in the cannabis industry. Have a unique value proposition, understand your customer base, Know the rules and follow them closely, get that money lined up, and have a rock-solid marketing strategy.
I hope this episode gave you some food for thought if you’ve been considering a business in the cannabis industry. And, that you visit my show notes for this week because they are loaded with some super helpful resources and links. While you’re there, be sure to download my latest Freebie 12 steps to starting your dream business in the cannabis industry. In this fillable PDF, I’m going to walk you through my full-proof formula for planning and launching a cannabis company complete with a checklist for each step in your business building journey. So hop on over, get your copy, and as always, until next time, onwards and upwards to elevated advocacy.
RESOURCES MENTIONED IN THIS EPISODE:
Marijuana Business Daily put out a useful chart showing the profitability of each type of cannabis business.
If you're hoping to do a little market research, be sure to check out the Archview Group, MJBizDaily, and BDS Analytics.
Each state has different laws, you can visit FindLaw for a handy state-by-state guide.
Investment capital is key. Both Ganjapreneur and New Cannabis Ventures have great investor indexes.
All-In-One Tool For Online Courses Creators: https://app.kajabi.com/r/9932L4Rb/t/pepcmfdo
Best Online Head Shop: http://www.420science.com?aff=22
Best Cannabis Journal: https://shopgoldleaf.com/?aff=sativascienceclub
Best Electric Dab Rig: https://bit.ly/2MfsO6X
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