9 Totally Normal Business Considerations That Are Completely Different in the Cannabis Industry
Cannabis is a multi-billion dollar industry completely unlike any other. And that is not entirely a good thing.
Entrepreneurs are very, very interested in cannabis. But how do you break into a multi-billion dollar a year industry that differs from the rest?
I founded Green Rush Daily, a cannabis media company, and within two years sold it to High Times magazine for seven figures. Are you considering opportunities in the legal cannabis industry? If so, based on my experience here are nine things you should think about before entering the cannabis industry.
1. Exit strategy
Most importantly of all, how will you sell a cannabis business after you've built it? An essential part of any business plan should be your exit strategy. Keep in mind that you may not be able to use the federal banking system at all. It doesn’t matter if you’re investing or cashing out of cannabis.
Just because weed is still federally illegal doesn’t mean that the federal government, in addition to the state and county, isn’t taxing it. In fact, cannabis businesses are subject to a lot of federal taxes. For example, plant-touching cannabis companies cannot write off business expenses. While the media reports massive profits in cannabis, keep in mind that these businesses have to pay significant taxes.
Every entrepreneur should consider how they’re going to market their product. Cannabis businesses cannot advertise on social media or TV, or in virtually any public place. There are more limitations on how you can advertise cannabis than alcohol.
Not only are there the states with legal weed and those without it, but cannabis laws vary state to state and county to county. Most places also have rules on where you can open a cannabis business, depending on factors like how many there are in your area and how close your property is to a school, for example.
Cannabis is one of the world's fastest growing industries, but there are already a lot of cannabis businesses out there -- especially on the West Coast. More precisely, there are a lot of specific types of cannabis businesses. For instance, some markets are saturated with cannabis cultivators, while others are "pot deserts," meaning places where people struggle to access medical and recreational cannabis.
6. Regulatory compliance
Considering the number of regulations, and how often new legislation changes, regulatory compliance can difficult and costly. The closest comparison would be food safety regulations. In other words, to legally get a consumable product to market, you have to follow strict health and safety standards—and be able to prove it by documenting the supply chain.
7. Business model
There are two distinct types of cannabis companies: plant touching and non-plant touching. Those that “touch” the plant—dispensaries, producers, distributors -- are subject to much stricter regulations than non-plant touching ones like a smoking accessories retailer or industry-specific tech company. Again, opportunities in weed go beyond growing and selling and mean very different things in the eyes of the government.
A business within the legal cannabis industry cannot get a loan from a bank. The only funding options are investing your own capital or obtaining private equity funding. Even after a plant-touching cannabis business is set up, it won’t necessarily be able to open a bank account or process payments.
Don’t mistake saturaturation in certain zip codes and complicated regulations for lack of opportunity. One particular area might have many established dispensaries and cultivators but few cannabis testing labs, for example. Hurdles in any industry are also opportunities to exploit means of monetization. You just have to be creative when choosing your location and coming up with your business idea.
Every obstacle cannabis entrepreneurs face goes back to the fact that marijuana is illegal federally. Laws and markets vary widely. Bank accounts, loans and payment processors are either complicated or impossible to get. Marketing and regulatory compliance are challenging to navigate. But for creative entrepreneurs, the cannabis industry offers a once-in-an-industry opportunity. However, only when cannabis is legalized federally will the industry reach its full potential.