So You Want to Start a Cannabis Business: Advice for the Absolute Beginner
Interested in starting a business in the cannabis industry? I can’t blame you—business is booming and there’s the potential to make huge profits as this sector continues to grow exponentially.
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.
Mike Bologna, CEO of Green Lion Partners , a Denver-based business strategy firm focused on early-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.
Bethany Gomez is director of research for Brightfield Group , a cannabis-focused market research firm providing accurate and comprehensive consumer, brand, and market insights in the industry. Here’s what she has to say on the matter:
“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. For example, even setting up a means of accepting payments can be tricky (so make sure you read this article on accepting payments as a cannabis business to learn more about your options). It’s recommended to hire an experienced attorney to aid you in navigating this process to make sure your business is legit.
“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!
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The cannabis industry is huge and continues to grow. If you’re interested in starting a cannabis business, here’s how to start and what to keep in mind.
What I learned during my first year in the pot-growing business
I’ve been a pretty avid pot smoker since I moved to San Francisco from Massachusetts in 2005.
I didn’t smoke much growing up on the East Coast, but I took to NorCal weed quickly.
For the next ten years, I maintained a pretty mainstream lifestyle (by San Francisco standards) as well as a stable career in Operations-Management for a local non-profit, all while smoking massive amounts of ganja at every opportunity.
Smoking rarely got in the way of work, and work rarely got in the way of smoking.
As I entered my thirties, my career was moving along nicely but I didn’t feel any fireworks for the job. While I was making good money in a respectable position, I didn’t feel any enthusiasm for my work. Slowly, I became one of those jabronis who dreads going to work every day for a measly paycheck. In truth, the best part of my work day was the fat joint I would smoke every night on my way home.
So before settling for a job that was just barely good enough, I decided I would try to live the dream and get a job in the cannabis industry.
I started trying to pick up any work I could find around the marijuana business. I hit up friends, and friends of friends, and friendly folks who smelled like weed. My first gig was helping a buddy trim the 30 White Widow plants he had grown in his basement.
Over the course of the next few years, I worked with a variety of outdoor growers in the famous “Emerald Triangle” of pot-growing counties in Northern California. I acquired some good knowledge and made some extra cash, but struggled to find a role beyond seasonal work.
Now, I’m a cultivator and a veteran member of the team with an increasingly significant role to play. I’ve worked hard and learned on the job. I’ve thrived with the company and, while it hasn’t always been easy, I’ve loved every second of it.
I am proud to tell people what I do for work and eager to talk about the state of the business. With the groundswell of support the nation showed for marijuana in November, the conversation about cannabis has been brought into the public light more than ever. However, I’ve noticed a few recurring misconceptions which seem to come up whenever I talk about the cannabis business with outsiders.
And of course, it wasn’t that along ago when I was an “outsider” myself, and had similar misconceptions. Looking back on the journey now, these are the five most important things I’ve learned about the cannabis industry:
The business isn’t just for gangsters and degenerates anymore.
I don’t really think it ever was just for gangsters and degenerates, but you know the reputation. When I talk about the pot business, people often imagine a guy with blond dreadlocks who smells like patchouli oil, sitting in a lawn chair in the woods with a pit-bull and a shotgun.
“I’m hoping to work my way up to Head Guy Sitting In A Lawn Chair In The Woods,” I tell them. And while that description may look a bit like me in that old picture a few lines up (trading the shotgun for a ukelele), it doesn’t look much like the modern grow facilities that now dominate the marketplace.
Growers have been operating within the shifting gray areas of the law for decades around Northern California. With the passage of Prop 64, the business becomes increasingly legal, legitimate, safe, and regulated. The people that have operated at the outskirts of the law– the rogue entrepreneurs, botanists, shamans, and outlaws who dared to grow a forbidden plant (it sounds so ridiculous now, doesn’t it?)–have a year to get square with Sacramento.
Meanwhile, the early on-boarders to legalization find themselves at the vanguard of the industry. The business is an eclectic mix of outlaws and upstarts; a true meritocracy with no discrimination or prejudice. Whether you’re rich or poor, black or white, Protestant or Juggalo; the only thing that matters is how well you do your job.
And while there might still be more patchouli than your average workplace, marijuana growers are some of the greatest people on earth.
But we’re not startups either.
“I ride to work every day on a bus that’s got a smoothie bar, foosball table, and vaping lounge” one of my techie chums tells me, “But I can’t imagine the amenities your workplace must have!”
The modern pot biz, I have frequently noticed, is easily confused with that other California boom industry: tech. And while there is a lot of cross-over between the cannabis and tech industries (such as app’s and web-based delivery systems; an ever-more-perfect product line from PAX; and constantly advancing grow technology) their respective corporate atmospheres couldn’t be any more different. While tech is famed for opulent facilities and lavish spending, the pot business is lean and spartan. A good grow-op will have everything you need to grow a huge amount of great weed, and nothing else. We pride ourselves on efficiency and we measure success in inches, seconds, and cents. A successful pot operation devotes maximum resources to the plants while creating as little extra cost as possible.
(Flashy cars, sneakers, and dab-rigs excluded).
The work is hard.
The work falls between agricultural and industrial. It requires a broad and diverse skill set. The gardening is peaceful, but there is also a plumbing and electrical system to operate, critical data to track, and a huge amount of routine janitorial work that comes with growing plants, which–inevitably– includes killing rats.
But, as we frequently say around the office, the plants never stop growing. The workload is heavy and unlikely to light up anytime soon as the market-demand for marijuana continues to grow. Fortunately.
We love what we do.
Imagine a workplace in which every single one of your coworkers has a deep and passionate love for the product. They use the product every day. It is deeply connected to their mental, physical, emotional, financial, and spiritual well-being. It has been more central to their identity than their race, religion, music, or favorite sports team.
They love the product so much that they may have gone to jail for it. Maybe they even have the product tattooed on their neck, which probably wasn’t a great decision in hindsight but still a meaningful testament.
No one has “fallen into” the cannabis industry. Growing pot isn’t anybodies “plan B” (unless “plan A” was seriously bonkers). The industry is populated almost entirely by people who are passionately, enthusiastically, fervently devoted to marijuana. Job satisfaction is high (*nailed it*). It’s an inspiring atmosphere, to say the least.
The future is bright, but the fight’s not done.
Many folks think that with the pending legalization of the recreational use of marijuana, the fabled Green Rush is approaching it’s peak. While the industry is certainly thriving now, the rush is just beginning. California is set to be the largest cannabis marketplace in the world when it opens in January of 2018. Additionally, the national market place is going to be available soon and even a legitimate international marketplace, eventually.
Then there are the secondary industries that will blossom in the shadow of the industry, from technology to tourism. A renaissance is beginning. Cultivators are coming together to share generations of knowledge and ground-breaking technology. Communities of cannabis-enthusiasts are forming on-line and IRL.
Knowledge is flowing more freely than ever and the young mavericks of our craft are increasingly free to explore the rich depths of the industry. What’s truly remarkable are the possibilities we haven’t even imagined yet.
2017 will be my second year in the business, and the last before fully legalized marijuana becomes the law of the land in the Bear-Flag state. Our federal government has fought a war on cannabis for decades and the good guys are finally winning but the fight is far from done.
As prosperity arrives for a select few of us, we must not forget our brothers and sisters who are still incarcerated as a result of the Drug War. According to DrugPolicy.Org, more than a half-million Americans were arrested for simple possession in 2015. I’m buying weed cooked into macaroons from a fancy boutique and 10,000 people are suffering the indignities of incarceration for having a bag? It’s not right.
It’s also not time to take it for granted that legal weed is the law of the land.
With Donald Trump on the Iron Throne, it’s hard to be sure of anything. While he has historically held a progressive stance on marijuana, he has surrounded himself with several high-profile anti-cannabis crusaders (including Chris Christie and Jeff Sessions) who have repeatedly floated insinuations that the Drug War isn’t done.
8 states (and Washington D.C.) have now legalized marijuana for recreational use, and more than 20 other states have medical marijuana laws in place. While support has been strong for marijuana, almost half of the country still lives under prohibition. It is my belief that every American deserves to have access to the medicinal benefits of marijuana, and that no government should be allowed to interfere with a citizen’s right to grow and harvest a plant on their own property for their own usage.
So until that’s the law of the land, I’m going to keep making noise about it in City Hall and on Facebook (and with some of the resources listed below).
And maybe one day the tides will turn so for as long as I can, I am going to keep trying to grow the absolute best weed that I can.
This column does not necessarily reflect the opinion of Business Insider.
2016 was the year I broke into the legitimate cannabis industry.