5 Lessons Learned In 5 Years Of Cannabis Legalization
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The slow crawl toward federal cannabis legalization has been occurring in the form of scattered decriminalization and medical efforts for decades. The last 5 years, in particular, can provide cannabis entrepreneurs with valuable insight into mistakes made.
As the modern cannabis industry enters its fifth true year of learning, I have taken serious note of pitfalls to avoid. Profitability will remain elusive if new and old cannabis entrepreneurs don’t learn from past mistakes.
1. Avoid bad business partners and greedy consultants
Most companies in the cannabis space were in California and Colorado before 2015. Then, other states started coming online in rapid-fire. Those years mark the lost years of bad partnerships and bad “consultants”.
Almost all of the license winners had zero qualifications in cannabis and less business sense than political connections. Consultants devoured these early businesses until more than half of these early partnerships ended in lawsuits and failed ventures.
Still today, the same mistakes are made in thinking you can run or invest in a business you know nothing about. Do your homework. Use free resources in order to educate yourself more than anyone you're hiring.
2. Consider 280E and the government tax code
“If you listen to the President you will lose half your money, if you listen to the CEO you will lose all your money.” This old Wall Street saying has been adapted for cannabis to be, “if you listen to any government person about cannabis, you will certainly pay the highest taxes and fees and they will do nothing to help your business.”
The governments are notoriously happy to collect your money but do nothing about black markets and unreasonable taxation which cripples’ businesses. This industry is not any more profitable than the next.
All new entrepreneurs need to stop thinking they are lucky. We must start demanding lower taxes and that those taxes go to supporting the cannabis business. If we don't, only a few public companies that can survive on losses will be left.
3. Is vaping bad for you and your business?
A few bad apples spoil the bunch. The vaping lung disease resulting in almost 1000 deaths showed governments and businesses alike that lack of regulation and the proliferation of the unlicensed market can hurt everyone. In September 2019, about one-third of the sales in cannabis were from vape products. It’s clear that federal ambiguity and local state governments didn’t do their job to protect the industry and regulate it.
But ask yourself, besides being easy and discreet to use, is vaping medicine the healthiest route? Or vaping a manufactured taste in a distillate with THC? Natural buds, free of chemicals, or edible products are the healthier road and occupy a combined 80 percent of the market now.
This is all to say, stick to the big part of the pyramid and not the small percentage shots even if they seem like the future.
4. Pay attention to profitability
Over the last year, we have seen cannabis stocks get obliterated financially as they built for a future that never came. Canadian cannabis companies got flooded with money and over built-in hopes of supplying the world, but the world didn’t open for them and their market had massive shortcomings. Even US companies were hurt, but not because the market wasn’t there, but because of high taxation and not achieving profitability.
When the merry-go-round stopped, and they couldn’t sell any more stock, they faced the reality of no profitability. This forced companies to begin selling assets and downsizing.
When you start your business, the only thing worth watching is profitability and achieving realistic results to keep shareholders happy. Expand prudently and don’t believe in any pie in the sky profitability revenue numbers. Everything in cannabis costs two times more, takes two times longer to build, and you get half the revenues and results. Once you find that number, cut your profit in half and you have a good future.
5. New lessons learned from the pandemic
Being deemed an essential business during the COVID-19 pandemic is a feather in the cannabis industry’s cap. In addition, cannabis beat out alcohol as the preferred recreational substance of Americans in legal states. Difficult times are often when people lean on alcohol the most, but the combination of cultural shifts towards cannabis acceptance and the WHO saying alcohol is antagonistic to COVID-19 resulted in a downturn.
Many of the problems facing cannabis companies now are rooted in non-profitability before COVID-19. And of course edibles and not sharing joints or bongs became more prevalent. As the legal world matures out of the phase, edibles and pills will still remain a large percentage of sales. But what about an economic recovery?
By January 2020, 237,700 full-time cannabis employees existed. This was a 15 percent increase from previous years, making cannabis the fastest-growing industry in America. This year alone cannabis cultivation seems to actually have increased employment.
In fact, if cannabis was legalized, Frontier Data predicts cannabis could generate $73.7 billion in taxes and 1.6 million jobs by 2025. New and old entrepreneurs deserve banking and equal taxation rights like any other business. So, stay active in pushing for your rights.
We have many more hurdles we need to jump, but a few things we can understand from past experience. Build responsibly with knowledge of what you are doing, be aggressive on taxation that affects your business models, don’t follow trends that seem unhealthy, seek out profitability and proper budgeting, and be prepared as we exit quarantine to execute on the future of bringing economic recovery to America and the world.