The 3 Factors That Could Determine Your Success in the Cannabis Industry
This article is part of our series on How to Start a Cannabis Business. We seek to promote financial inclusion through cannabis. In previous articles, we’ve looked into numerous aspects of getting into the marijuana industry, including questions you should ask yourself before jumping in and where to find funding.
If, after considering all of these issues, you've decided you want to start a cannabis business, you’ll need to figure out what kind of business you’ll want to start.
Three things are key in determining whether your cannabis business has what it takes to succeed: your skill set, the competitive landscape, and your location.
On the aptitude side, the main questions you should ask yourself are:
- What do I know and what don’t I know? What am I good at?
- What do I have experience in? How can I apply my talents to this industry?
- Who do I know? Would they be willing to be a part of my team? What are they good at?
Advisors across the board often urge people to avoid changing jobs. Instead, change your industry by figuring out how to make your background useful in a new field. The cannabis industry provides the perfect opportunity to do just that since it’s a relatively new and emerging sector. Think about what skills you already have from your experience in other businesses that might apply in a lateral move to being a cannabis entrepreneur.
On the competitive landscape side, you’ll need to do extensive market research to find out which subsegments are saturated in your state and which ones still have space for new businesses. Take into account that there are still a lot of unmet needs in the industry, especially when it comes to companies servicing exclusively cannabis businesses.
Take the example of Wurk: It does regular old payroll management. However, its system has been created especially for the cannabis industry. Other, similar companies include:
- Baker Technologies: customer engagement
- CanPay: debit payments processing
- Green Flower Media: online education
- Headset: retailer-direct data
- High Times, Leafly, and Herb: media
- IPG: physical security
- Salar Media Group and Proven Media: public relations
All these businesses do things that other, much larger companies have been doing for decades. What differentiates them and drives their success is their focus on the cannabis industry.
Location is central to figuring out your market selection equation. You can either pick a location first and then determine which business is most likely to succeed there, or you can think of a business, then find the right location for it. Don’t forget, though, that many states only allow residents to start plant-touching businesses, so be sure to find out whether your state has an open or closed market.
“A cannabis business has two specific types of markets: an open market like you see in Colorado or Oregon, and a closed market like you see in Florida or New York,” says Kyle Speidell, co-founder and CEO of The Green Solution, a cannabis company with more than a dozen retail locations in Colorado.
An open market allows for anyone who fulfills the legal requirements to start a cannabis business to start one, no matter what state he or she was born or resides in. Conversely, a closed market only allows its own residents to start cannabis businesses. You would need to domicile there and spend a few years actually living in that state and paying taxes before you could start a business in the cannabis space. So market location analysis upfront is key when determining your initial strategy.
Location can also determine which kind of business you can start in another way. “If you are, let’s say, in rural Iowa and not in an urban area like New York City, the possibility of getting involved in the cannabis industry through the production of hemp might be much easier,” adds Leslie Bocskor, President of Electrum Partners.
A rural location would also be great for people seeking to make a business out of servicing hemp cultivators. If you don’t want to grow hemp, you could provide farmers with the right kinds of nutrients for hemp cultivation, build greenhouses, supply lighting for indoor grows, offer clean energy options, or process the raw material to make plastics, paper, or oils. Again, the options are ample.
Take into account the existing infrastructure as well. To better illustrate this point, respected cannabis activist and successful entrepreneur, Steve DeAngelo, holds up his company as an example. Harborside was the first cannabis company to start growing weed in Monterey County, California. He primarily chose this location for the pre-existing infrastructure: There were unused greenhouses that could be purchased and refurbished for a reasonable price, a large unemployed workforce with experience growing and cutting flowers, and a climate that was ideal for cultivating marijuana.
By finding the right location in terms of climate, infrastructure, and workforce, Harborside was able to start producing cannabis that was the same or better quality as other producers, for at least half the cost.
On the other hand, if you’re seeking to start a cannabis business in an urban area, you’ll probably be more inclined to create a lifestyle-oriented company: maybe a smokers’ lounge or dispensary, or a firm that makes products for cannabis users, such as bongs or pipes.