Over half of the United States already have legalized cannabis in some form—that’s 29 states plus the District of Columbia. Many states have only legalized cannabis for medical use, but that’s gradually changing as well. Currently, one in five Americans lives in a state where they can use cannabis recreationally, without a doctor’s note.
In 2016, marijuana sales in North America grew by a massive 30 percent, and sales are projected to reach $20.2 billion by 2021. This is a huge deal, especially considering the industry is still in its infantile stages. There are still many gaps waiting to be filled by those who are forward-thinking and innovative enough to realize this is a once-in-a-generation opportunity.
That said, the path to a successful cannabis business is not a smooth and easy one to navigate—it’s full of confusing laws and regulations, steep taxes, and many other unforeseeable roadblocks and hoops to jump through. That’s why we asked cannabis industry experts (who already have successful and profitable businesses!) for their top advice on starting a “cannabusiness.” Their tips and information will give you a clearer road map and allow you to be more prepared for your exciting journey ahead.
Come up with a unique idea
When starting a business in any industry, having a unique idea that fills an unmet need is crucial to becoming a success.
First, you’ll need to decide which sector of the marijuana industry to go into. Generally, when someone thinks about types of cannabis businesses, dispensaries and grow operations usually come to mind.
Many see huge dispensaries in Colorado, for example, raking in big bucks. But this can actually be the riskiest business area to choose, with the tightest profit margins. As the legal use of marijuana continues to grow across the U.S., the price of weed will continue to go down, leaving those with grow-ops and dispensaries with fewer profits as time goes on. They’re also the ones to be hit hardest with a sea of strict rules and regulations. On top of all of that, banks still refuse to work with businesses that grow or distribute marijuana because it is still illegal under federal law.
This is sure to change eventually, but for now, you will still need to fundraise enough capital without any loan assistance. How much? Many states require proof of at least $1 million in available cash to obtain a dispensary license. You should also keep in mind that you won’t be able to keep your profits safely stored in a bank account. All businesses that directly deal with cannabis are forced to keep their capital in cold hard cash, which is obviously highly inconvenient and dangerous—though some have been getting around this issue using cryptocurrencies like bitcoin to keep their funds more secure.
But the cannabis industry is much more than just grow operations and dispensaries. If you’re a foodie, perhaps look into making a unique edibles line. There are even people opening up “bud and breakfasts”—cannabis-friendly lodging (some even provide marijuana-infused oil massage—sign me up!).
But truly, the least risky kind of cannabis business to start is one that doesn’t directly touch the controversial plant at all. According to the Controlled Substances Act, the bulk of the regulations for businesses in the cannabis industry are only applicable to cannabis growers, processors, and sellers. This is why ancillary marijuana businesses are doing so well—they aren’t burdened with all the red tape and high taxes. From hydroponics and cultivation products to professional training and education, consultancies, media companies, the plethora of new technologies—the list is endless, and so are the opportunities.
If you’re technical and a savvy inventor, you could design a product that helps marijuana user process or ingest their medicine—think about all the fancy vape pens that have been coming out, or the rosin presses that easily extract solvent-free oil from bud or trim.
Alex Collins, CEO of Sapling, a Utah-based marketing strategy firm focused on early-mid-stage development amongst firms in the cannabis industry, explains how essential a viable business idea is for aspiring cannabis entrepreneurs:
“When considering starting a business in the cannabis industry, entrepreneurs must first ensure their concept is legally viable and offers a unique solution for the space.
Too frequently, a concept is exciting but cannot be supported within the legal framework or is simply a recycled concept that is reliant upon ‘first mover’ advantage in their jurisdiction.
For long-term scalable success, a company must be able to withstand the dynamic regulations and business factors in this rapidly changing space.”
Marijuana Business Daily put out a useful chart showing the profitability of each type of cannabis business—take a look here.
Understand your consumer base
Once you have a winning idea, it’s vital to know who is going to be interested in your products or services and to deeply understand their particular wants and needs.
“When starting a cannabis business, two things are crucial: understanding the unique challenges of this industry and understanding your consumer base and the unmet need you are filling for them.
The cannabis industry is unlike any industry you have ever worked in, and the regulatory, supply chain, banking, taxation, advertising, and stigma aspects of the business eat your profits and draw your attention away from core aspects of your business.
The legal cannabis space is becoming crowded and targeted consumer segmentation is increasingly important, so it’s key to understand who your core consumers are and what they want from their products.”
So get out there and do research on how you can ensure your future customers are happy and satisfied with what you offer them. Really get to know and understand them. Build a relationship with them. Do this, and you will develop a loyal consumer base.
Krista Whitley, CEO of Altitude Products, a Las Vegas-based conglomerate of cannabis companies such as Social Media Unicorn, a canna-brand marketing and sales agency, and the Vegas Weekend Box, a monthly variety box of Las Vegas’ top cannabis products, agrees that a good relationship with your consumers is essential:
“Success in the cannabis industry is uniquely tied to the connection and brand that leadership has with the local cannabis community.
It doesn’t matter if you’re starting your cannabis business in Washington, Colorado, or Maine; you should start by building authentic relationships with your local cannabis community.”
Know the rules (and follow them!)
Even if you have a brilliant business plan, plenty of funding, and excited consumers that want what you’re offering, if you don’t play by the rules, you’re going to get shut down, get hefty fines, and could even go to jail. Let’s try to avoid that, yes?
The laws, rules, and regulations for opening a cannabis business are incredibly confusing and complex. It’s recommended to hire an experienced attorney to aid you in navigating this process to make sure your business is legit.
Each state has different laws, so go here for a handy state-by-state guide.
“Both medical and adult-use businesses require, in most states, a license to operate, which is generally valid in just one state. Thus, your plan needs to comply with state law. The application process will give you a roadmap and likely where you can operate,” explains Norman Olson, director of marketing and Business Affairs at Hightech Extracts, an engineering company developing systems for the manufacturing of extract-based products. “Funding and differentiating your service or brand will definitely help. Pick any consultant you engage only after thorough reference and background checks. Smoking a joint does not make you a cannabis expert!”
If you are irresponsible with your new cannabusiness, not only can this cause huge problems for you, but also for the cannabis industry as a whole. When businesses are performing reckless practices, it hurts the reputation of this new industry that still has many negative stigmas against it from the wider public.
Arnaud Dumas de Rauly, chief strategy officer for The Blinc Group, the first business incubator for brands specializing in vaporizer and cannabis consumption technologies, advises new cannabis-related businesses to understand the space and pay close attention to industry best practices:
“The cannabis industry is new and not yet fully regulated, making it very important for people entering the space to get in touch with their local institutions and industry groups and follow their guidance wisely.
The vaping industry was in a similar position a few years ago, and it’s now facing huge regulatory challenges, some specifically caused by entrepreneurs that didn’t take the time to do things right when first setting up their businesses, such as not acquiring licenses, using bad branding, labeling, and sales channels, and marketing to children.
For the cannabis industry to grow properly, it’ll need to avoid giving extra ammunition to regulatory agencies and opposition groups that seek to destroy it.”
Raise enough capital
With any startup, investment capital is crucial to getting your business plan off the ground. Some investors don’t want to put their money into cannabis businesses since it’s still illegal under federal law. And, as stated earlier, forget about asking the bank to fund your marijuana business. Focus on finding some great private investors. While some are still wary, there are many investors out there excited about how fast the marijuana industry is exploding with growth, and they want in on the action. Look here and here for starters.
Dr. Andrew Kerklaan, president and founder of Dr. Kerklaan Therapeutics, a robust line of doctor-designed, lab-tested, patient-approved cannabis products that provide pain relief, sleep aid, PMS relief, and skin health, agrees:
“The days of bootstrapping a start-up in the cannabis industry are quickly coming to an end, if not already over.
My advice is to raise smart money with investors who can bring experience and expertise from other industries to the table. Raise enough capital to quickly be able to compete.”
Work hard and have fun!
It’s a very exciting time to get involved in the cannabis industry. There are boundless opportunities to collaborate with a huge variety of businesses.
Hopefully, now you have more of a solid idea of what it takes to start a business in the marijuana industry. Those willing to work hard and play by the rules have the potential to be extremely successful. Follow these guidelines and you will be well on your way to having a profitable business in the cannabis industry. Good luck!