How to Scale Your Cannabis Business in 4 Steps
Congratulations, you're past the start-up stage. Here's what you need to do to make sure your business stays in business.
The following excerpt is from The Staff of Entrepreneur Media, Inc. and Javier Hasse’s book Start Your Own Cannabis Business. Buy it now from Amazon | Barnes & Noble | iTunes | IndieBound
This article is part of Entrepreneur’s 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 how to convince investors to give you money and ways to overcome the main post-startup challenges. In this last article, we’ll share some advice on scaling cannabis businesses beyond the startup stage.
“In a small startup, everyone in the company kind of fills in where needed,” says Michael Gorenstein, CEO of the Cronos Group, one of the largest marijuana companies in the world with a market capitalization of roughly $1.5 billion. “But as you scale, it’s important to put in a framework that allows you to push down accountability, think about how you’re going to deal with internal communications, and how you can make sure that the huge range of tasks and issues that come up can be dealt with in a very effective and clear manner.”
The following are some key action items you need to focus on to help ensure that the cannabis isn't the only thing growing.
1. Differentiate yourself.
It’s essential that you very clearly communicate what’s special about your product or service and what features really differentiate it from the rest. Is it cheaper? Is it manufactured in an ISO-approved facility? Is it organic? Is it more efficacious?
Ways to differentiate your business include:
- A unique product
- Organic certifications
- Great packaging
- Competitive pricing
- High quality
- 24/7 customer service
- Regional offices
- Dedicated account managers
- ISO approval
- Online tracking
- Subscription to blockchain control services
- Cryptocurrency integration
Keep in mind the differentiation gap can close quickly. So think ahead; plan how you’ll maintain the gap over time and avoid larger competitors incorporating your ideas into their products, ultimately wiping you off the map.
2. Raise more money.
“The single biggest limiting factor when that time comes will be money, and how much cash you have on hand," says Compassionate Certification Centers’ CEO Dr. Bryan Doner. "Your expansion/ growth and time to do so will be directly correlated to how much money you have access to then and there, at that moment.”
But Gorenstein cautions against just taking money from anyone. “When you’re raising money to grow and ramp up capacity, you should think of who the capital comes from,” he says. “If you get helpful, well-connected investors in early, they’ll work to help you grow your company -- and you won’t even need to pay them.”
“When it comes to raising capital, if it sounds too good to be true, then it likely is,” 420 Investor’s Alan Brochstein contends. “Sometimes it’s better to raise capital from a smart partner who’ll contribute in other ways, but maybe on somewhat less favorable terms, than one who will constantly pressure the company to show quick, short-term gains.”
3. Get more help.
As your business grows, you’ll need guidance with more complex things like advanced ordering, volume pricing discounts and daily operations because complexity surges exponentially with scale. Just make sure you add the right people to your team.
“In my opinion, this cannot be emphasized enough,” Compassionate Certification Centers’ Dr. Bryan Doner says. “Always remember that you can’t do it all yourself. Being able to delegate to the appropriate person is key to keeping up as your business grows. Things can change quickly in cannabis; be ready to adjust accordingly and on the fly.”
At this point, you might find that you need a chief operating officer (or COO) to be in charge of daily operational issues. “A COO is crucial to manage internal planning,” Gorenstein says. “But you’ll also need to start laying out other departments [at this stage]. If you focus too much on one area and leave a gap, any single area you ignore can cripple your business. If you don’t have your marketing department beefed up and ready to go (even if you are using an agency), when you launch your product in additional territories, implementing the details (logos, fonts, themes, messages) will be hard.”
The same logic applies to other departments, like hiring a CFO to oversee the finance branch and putting a good sales force together. As more capital starts flowing into your company, the amount and variety of taxes, the complexity of your payroll, the benefits your employees receive, etc., will all become harder to track.
4. Go multi-local.
How does one grow a cannabis business from a single store into a multilocation company? How does a nonretailer (like a software company, a wholesale business, a consultant, etc.) expand its reach?
Two of the most important elements, in this stage of growth, are good public relations and good media coverage. So pick a PR agency that knows the industry and fits your specific needs to help you get mainstream media coverage. Destigmatization and education are crucial to getting people to understand that cannabis isn’t about getting high, but about medicine, social justice, inclusion, tax revenue, crime prevention, etc. All this is central to reaching mainstream customers who will most likely fuel your growth once you’ve passed your initial phase of development and reached most of the regular cannabis consumers that might be interested in your product.
It’s important to highlight that licensed operators, infused products manufacturers, and so-called OTF (other than flower) product companies, including vape pens and edibles makers, are restricted to doing business within the state they’re located in. Businesses that aren’t licensed and/or don’t sell infused products and OTFs can do business in any state and around the world.
“We’ve seen many product companies that would be great national brands, but the capital and infrastructure required to expand outside the territory they’re licensed in or conduct business in is prohibitive,” says Larry Schnurmacher, managing partner at Phyto Partners. “It becomes difficult if not impossible to create economies of scale and streamlined systems logistics that are identical.”
Another key point here is quality and consistency. “You will want to be like McDonald’s, where every cheeseburger is the same,” Celeste Miranda, CEO of The Cannabis Marketing Lab, says. “Many companies in the cannabis industry want to go multistate but cannot keep their products consistent even in their own states."