Should You Create a Start-Up Or Join One?
Five factors to help determine whether you should start your own cannabis company-or become part of an existing one.
When deciding to enter the cannabis industry, you'll find that many factors will help guide your strategy and ultimately determine your success. One of the big questions to ask yourself: Do you want to create a start-up in a new market or enter an existing, already competitive marketplace.
I'm able to offer advice from both sides of the coin. In 2016, when Nevada legalized cannabis, I founded Solaris Farms— technologically advanced hybrid greenhouses for cannabis cultivation. Solaris was a start-up company that I constructed on an empty lot of land in North Las Vegas, with nothing but my own private equity backing it. Today, I have built one of the largest private verticals in Nevada.
I also have experience in an existing, competitive market. In 2019, I joined the board and later became the CEO of Somai Pharmaceutical, an Ireland-based company focused on the cultivation, extraction, and distribution of cannabinoid-containing, GMP-certified pharmaceutical products throughout the European Union.
Working on these two ventures, I have identified the biggest and most important differences. I hope that the following insights might make it easier for other entrepreneurs to decide the best entry strategy.
1. Determine your timeline
Are you looking to make money today or make potentially more money in 3 to 4 years? Start-ups tend to take a few years before they start to break-even—assuming the regulations go as planned in your specific market. In states like New York and New Jersey, the cannabis business has developed far slower than anticipated. Overly burdensome regulations by lawmakers have caused excessive development and staffing costs. However, in a state like Oklahoma with far less regulation, companies can expect to break even in two years. When walking into an existing business in a competitive market, you already know you will start making money day one. With improvements, you can take market share and increase profitability.
2. Follow the data
Consumer trends (a predictable future), and an inherently pro-cannabis business environment that comes with competitive markets, are key matrix’s when differentiating with a start-up environment. Take Europe as an example. There is no trend, consumer preference, or regulatory foresight to help navigate that future start-up budget—only the hope that when the dust settles, consumers will be there and ready to take advantage of the infrastructure to support the industry. Sometimes, it’s much better to buy into a competitive market and follow the trend with incremental movements rather than explosive potential.
3. Know your comfort level with spending
Acquiring an existing business becomes an equation of cash flow and value. Start-ups are based on what could be. The decision to put up more money today for what exists will cost you more than paying to buildup your business from the ground up. Any delays in building or market development will increase your budgeted spend, and the time value of money starts to eat away at if this was the right decision rather than buying into a competitive market.
4. Know what you don't know
When starting new, everyone’s knowledge is developing instead of studying every facet of a developed market. Everyone can walk into either a young or mature market with past business experience, grow experience, or product knowledge, but developing locations has a learning curve that needs local expertise. The decision sometimes comes down to how comfortable you are with your assumptions versus the facts of the market that are readily available.
5. Know what kind of fatigue you can best endure
In start-ups and competitive markets, owners get tired. Start-ups have to pace themselves with realistic and comfortable targets for you to run the risk of investor fatigue if things don’t go as planned. The goal is cashflow positivity and a decent launch. But in a competitive market, people get tired of running the same old business. Some pray for new blood to come in and rejuvenate the brand or outreach by buying. Opportunities and pitfalls lay in both paths despite their differences.
Whether you decide to begin a start-up in a fresh-looking market or enter an existing market, commencing and running a business is a humbling experience. You will be met with many challenges either way—both those you have prepared for and those that come unexpectedly. However, if you can maintain and preserve, you will find yourself with a company you are proud of.