Are you thinking of starting a new cannabis business?

by Jessica BillingsleyNovember 09, 2018

In early 2009, when I invested in one of the first legally licensed businesses in Colorado, there was very little competition in this industry.  If you were brave enough to risk the federal and state conflict and possibly face criminal federal charges, the rewards were pretty good. Those early businesses established themselves and their brands. Many of those still exist today though most brands are now led by new leaders.  The visionary, counter-culture rebels and risk takers who started those businesses were often not the same people who knew how to scale and grow in an increasingly competitive landscape.

Only a very few of us are still running our original businesses nine years later. Many of us have reinvented ourselves and our brands many times over the years to stay in alignment with this fast-moving industry. And, we are preparing ourselves for the next wave of growth and innovation. 

With MJ Freeway, we made a big bet on consolidation and a shift toward enterprise operations within the industry back in 2015 when we raised our Series B round of funding to build MJ Platform.  We felt we must have a true modern, API platform enabled ERP to provide value and serve the businesses of the future.  Today, we are seeing that consolidation and global growth in full effect and the power of our Platform is being realized. 

I am now betting on a global, legalized, and regulated future for the cannabis industry and have announced our merger with MTech Acquisition Corp. (NASDAQ: MTEC) ("MTech"), the first US-listed Special Purpose Acquisition Company, focused on acquiring a business ancillary to the cannabis industry.  We have also poured research and development focus into data driven technology within our business. We believe it’s important to give today’s businesses the tools to make smart decisions. By using analytics, they can understand how to add revenue to the top line or save dollars on the bottom line. 

If you’re thinking of starting a new cannabis business today, you’ll need more than just moxie.  In the U.S., there is still a small bit of reward available along with inherent risk in our federal/state conflict, but not enough to ensure success.  You may even be starting a business in a country with an entirely legal framework.  So, what does it take to succeed in starting a new cannabis business today? 

I’ve identified 5 steps to success:

1.    Choose your market
2.    Identify your target customers
3.    Build a unique brand
4.    Optimize efficiency
5.    Plan to scale

Let’s dig deeper into the roadmap to success within each of these. 

1.    Choose your market

The cannabis markets are still highly fragmented, which spells OPPORTUNITY.  If you’re well-funded, you may want to consider one of the fully legal countries or one of the US states with limited licenses.  You’ll need those extra dollars to differentiate yourself with marketing spend in a fully legal country. 

In the U.S., you’ll need that funding to pursue a license in one or more of the competitive, limited license states.  The licenses are harder to obtain, but your competitive moat is larger. This will allow you to build your brand and reach with less competition in your first years of operation. 

If you’re less funded, you should choose a market with a less expensive and competitive application . You should also identify your path to growth and how you will differentiate yourself in a crowded market. MJ Freeway’s consultants can help new business owners select appropriate markets, build your business plan and financial projections, apply for a license in competitive markets, and assist with buildout choices in your new facility.  Their advice is based on our wealth of data and experience on the inside of thousands of cannabis businesses worldwide over the past nine years.  They have each also spent years on the operations side of a legal cannabis business and bring that first-hand experience in their lessons learned advice and recommendations.

2.    Identify your target customers

Before you focus on building your brand, first identify your target patients or customers.  This can be a nuanced decision as you evaluate the following:

•    Your specific location and surrounding demographics
•    Whether you will target a broad customer base or the niche consumer
•    The micro-local shopping times of your potential consumers

Our consultants can help slice and dice this data on micro-levels to help you make more specific location and target customer decisions. The answer to these questions will help you make smart product and branding decisions.  Once your business is up and running, MJ Platform’s business intelligence and aggregated market data reporting can help you identify whether you are achieving penetration and traction with your target patients or customers. Here’s an idea of how this could benefit your business.

If you’re starting a cultivation or extraction and infusion business rather than retail, the same logic applies—know your customer’s customer and design your offerings to appeal to that group.  Understand your target customers’ preferences around quality, price, and consumption methods.

3.    Build a unique brand

Once you have your market and location selected and have identified your target patients or consumers, you’re ready to choose products to address that market.  What is your unique proposition?  What will you do better than anyone else to solve your customers’ needs?  Choose corporate values that are in alignment with how you will meet your customers’ needs better than anyone else and build your brand around them.  MJ Freeway’s three core values are, “Do the right thing,” “Be part of the solution,” and “Show people you care.”

By “Do the right thing”, we commit to honestly and fairly doing our best to enable our clients to operate in a compliant and regulated industry.  With “Be part of the solution,” we’re committed to solving our clients’ problems better than anyone else.  By “Show people you care,” we acknowledge a company is only as good as the people behind it.  What are your values?  How will you uniquely position yourself and your brand within the market? 

MJ Platform’s reporting will let you test different campaigns and brand positioning to hone in on what is best received in your market and with your customer base.

4.    Optimize efficiency

Being willing to take the risk of opening a cannabis business is not enough anymore.  Cannabis is rapidly evolving into a global industry, and traditional supply and demand pressures become increasingly relevant. 

You’ll need to be able to make ROI-driven business decisions about how many different products to carry, what strains sell for the best dollar to margin ratio, and what times of day are the best for business.

If you’re growing two strains, you’ll need to be able to identify if one is selling for 10% more than the other but actually costs 50% more to produce. 

You’ll need to know whether the extraction from one strain type takes 30% longer than another and yields less extract volume. 

You’ll want to know if women shop less regularly at your store, but spend more money when they do or whether 12-1pm is your highest ticket ring time of day compared to 5-6pm. 

MJ Platform’s business intelligence and market data reporting can help you hone in on all of these data driven ROI decisions, and, if you need help experimenting with different scenarios or operational efficiencies, our consultants can help.

5.    Plan to scale

This last one is important as we all look to the future.  Will you expand into other verticals, other states, other countries, or simply expand your set of offerings and/or locations within your market?  I recommend running the numbers and comparing different plans and paths to scale and being intentional in your short, mid, and long term goals.  The more clearly you outline your path to scale and your milestones to success—the more likely you will achieve them.

Because there is still risk inherent in the federal/state conflict in the US and UN treaties, there is still a significant risk/reward component to entering the industry now.  The perceived risk is still high, but I believe the actual risk is now low.  And, that presents a window of opportunity to you if you’re considering starting a new business today. 

The current fragmentation of the market today also presents opportunity for those innovators who can solve the problems caused by fragmentation and plan a path to scale as the market consolidates toward a global economy.  The days of the cannabis industry being led only by the counter culture risk-takers may be behind us, but there is a culture and foundation unique to cannabis that has been laid by its pioneers. When you start a business in this industry, you’re not just building a business, but you’re also helping to shape a young industry. There’s still so much opportunity in cannabis. The businesses who will succeed will be the ones that enter the market focused on their unique value proposition with a ROI-driven plan.

We’re excited about the future of cannabis. Our mission is to help as many businesses succeed in this industry as possible. We want to see and shape cannabis as a better industry, not just another one.  We want to see an industry full of diversity. We want to focus on increasing health, wellness, and social justice.  There is nothing we love more than talking about cannabis and the business of cannabis, so even if you’re just thinking about it, we’d love to have the conversation with you. 

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