The cannabis space presents one of the most exciting and challenging industries in the world today. To this end, as cannabis legalization continues to spread across the globe, hopeful entrepreneurs follow closely behind to populate new market opportunities. Due to this process of legitimization and expansion, the cannabis industry is ripe with innovation as well as youthful energy. However, the novelty and volatility of the market also present businesses with a slew of trials and tribulations not seen in more traditional lines of work.
Those who pay close attention to cannabis news understand the industry has faced challenges from the very beginning. From its outset, the market has struggled to solve issues related to startup structure as well as dissolve negative stigmas surrounding cannabis. Nonetheless, today’s entrepreneurs can build off the lessons learned by predecessors, while also reinvigorating the space with professionalism.
There are a few key waypoints that entrepreneurs can follow to successfully start a business in the cannabis industry. By focusing on realistic goals and market analyses, you can develop a winning brand in this exciting new industry.
Understanding Your Market
The first thing you must understand when starting a cannabis business is the market in which you will be operating. Importantly, because cannabis remains federally illegal in the United States, it has fallen upon State governments to regulate individual cannabis markets. Within this environment, cannabis markets generally fall into two categories: medical and recreational.
Business opportunities in medical and recreational cannabis markets vary drastically in their scope and emphases. For example, medical cannabis markets are carefully controlled with “licensing caps,” giving business owners (licensees) nearly exclusive rights to operate within the space. Conversely, recreational cannabis markets generally allow far more businesses to run in each given locale. In the end, business owners can plan on the fact that medical cannabis markets are harder to enter, yet easier to sustain themselves within. On the contrary, they also should count on the fact that recreational licenses are easier to acquire, but recreational markets are far more competitive.
By first understanding your chosen marketplace, you can begin planning a cannabis business that emphasizes the most important facets of a given market. Often, cannabis entrepreneurs will look to consulting firms to help them understand nuanced factors such as compliance and marketing.
Developing a Business Plan
A business plan for the cannabis industry will help define your company and give you a roadmap towards success. Importantly, a well-written business plan will give you a clear idea of financial planning, brand strategy, target markets, sales strategy, competitive analysis, team structure, and growth initiatives. It’s also worth noting, these vital elements are intimately tied to your decision to do business in either medical or recreational cannabis markets.
In developing your business plan, one of the most defining characteristics of your company will be whether you are starting a “plant-touching” company or an “ancillary business.” To this end, plant-touching companies are those that deal directly with cannabis products, including cultivation facilities, retail dispensaries, extraction operations, testing labs, delivery services, and more. Conversely, ancillary businesses are all those other operators that don’t deal directly with cannabis. These businesses include equipment manufacturers, staffing agencies, marketing firms, technology companies, and consulting businesses – to name a few.
Once you have decided on a business structure, you should develop a business plan based on conservative financial planning. As such, quarterly estimates, yearly projections, and growth initiatives should only be developed along with careful market analyses. Moreover, operational expenditures should be strategically planned to coincide with realistic income. By following a path of reasonable expectations and careful expansion, you can ensure that you do not overextend yourself. As seen with many facets of the cannabis business, it is often advisable to contact a professional consulting agency in developing a functional business plan.
Branding, Marketing, and Sales
Because the cannabis industry is growing increasingly competitive, effective branding, marketing, and sales are more important than ever. Generally speaking, you should develop a sales and marketing plan in conjunction with your business plan.
Since the 2014 genesis of recreational cannabis in Colorado, marketing and branding in cannabis have grown exponentially sophisticated. To witness this phenomenon first hand, you need not look any further than your local dispensary, where store shelves are stocked with branded products that speak to all walks of life. Therefore, it takes much more than “dank flowers” to sustain a cannabis business in today’s industry. Successful businesses are professionally branded and enter the cannabis field under the guidance of a targeted marketing strategy.
Modern marketing plans in the cannabis space are often a blend of digital strategy and traditional tactics. Therefore, the most successful companies have a strong brand message and are known to frequent industry events like tradeshows. However, they also put a good deal of stock into digital avenues such as email marketing and search engine optimization (SEO).
Once you have created a winning brand as well as a marketing plan, it’s time to put all your efforts to work through a sales platform. Looking back to the development of a business plan, a major factor influencing sales processes in cannabis will be Business to Business (B2B) vs Business to Customer (B2C) operations. Even more, you must decide how your sales team with approach customers – including cold calls, prospect emails, networking events, and more. Finally, you will likely want to implement a Customer Relationship Management (CRM) software platform to keep track of sales activities and gauge performance.
While the cannabis industry is both exciting and stimulating for business owners, it should not be taken lightly. To illustrate, the current market is a mixed bag of opportunity and failure – with experts projecting sales of over $14 billion in 2020, while industry leaders like Medmen simultaneously continue to flounder and sink. Needless to say, this confusing mire of profit and loss is enough to discourage even the shrewdest investors and entrepreneurs.
Speculation aside, if you are interested in starting a cannabis business there is ample opportunity. Within this field, rational thinking and unwavering patience should always be at the forefront of your day-to-day business operations. Even more, you can learn almost everything you need to know about the cannabis business by studying the market and learning from the challenges and mistakes of your processors.