How to start a business in the cannabis industry
It’s easy to dismiss the cannabis sector as a collection of growers who cultivate the plant, manufacturers that refine it into products, and dispensaries that sell it. While these components are important in the legal cannabis supply chain, the cannabis industry is far more complicated and diverse than those firms.
Plant-touching businesses and ancillary businesses are the two primary kinds of cannabis enterprises. Here’s a closer look at each, as well as some business examples from each category.
Plant-touching cannabis businesses
Breeders, cultivators, producers, and dispensaries are some of the plant-touching firms that come to mind when thinking of the cannabis industry. Other plant-touching enterprises, including as transportation and delivery companies that convey harvested cannabis and finished products from point A to point B, may not be so evident.
Plant-touching firms are the most tightly regulated in an industry that already has a lot of regulation. To start a plant-touching business, entrepreneurs must first get licenses through a lengthy and expensive application procedure with no assurance of success. The licensing application process varies by state, although there is usually a limit on the number of licenses available, similar to how liquor licenses function.
Vertical integration, in which a single corporation manages the cultivation, processing, and dispensary industries, is required in several states. Other states, on the other hand, have a specialized system, in which permits for different types of operations are maintained separate and frequently issued to distinct corporations.
Ancillary cannabis businesses
All other sorts of cannabis enterprises are classified as ancillary cannabis businesses. These firms are required to assist plant-touching businesses, but they are not involved in the breeding, cultivating, refining, or distribution of cannabis products. They can include experts such as lawyers and marketers, as well as packaging and mechanical companies that can help plant-touching enterprises enhance their processes.
While many people are enthusiastic about the potential of beginning a cannabis-related business that involves handling plants, ancillary businesses may have a lower entrance hurdle. When compared to many non-cannabis businesses, ancillary businesses face significant regulation, but they don’t have to compete for a license through a time-consuming and costly application process.
Many ancillary businesses can also be launched by expanding an existing business into the cannabis market or creating a new brand that is especially linked with cannabis. A digital marketer with years of expertise developing websites, conducting social media campaigns, and buying advertisements for customers might simply pivot into the cannabis field with a little research and networking.
Key takeaway: The cannabis market is varied and encompasses a wide spectrum of firms. Consider your current skill set and how you may use it to enter the cannabis sector with experience.
Common challenges for cannabis businesses
Cannabis businesses face a number of challenges in addition to those faced by startups in other industries. Navigating these obstacles in the early stages of your company and laying a foundation that allows you to adjust as regulations change will be critical to your success in the cannabis market.
Here are some of the most typical obstacles that cannabis businesses face, as well as some suggestions for overcoming them:
Developing the right partnerships
Going it alone in the cannabis sector is challenging, if not impossible. Early on, the alliances you form can make or break your budding cannabis business.
According to Scott Rudder, president of the New Jersey Cannabusiness Association, how you start your business is crucial to its long-term success.
“Right now, the best way to accomplish that is to hire a consultant who can work with you to design your strategies,” Rudder told Business News Daily. “To offer your team a competitive advantage, you need to build alliances and relationships across the country — the proper processes, the right SOPs [standard operating procedures], the right security strategy, and the right local attorney and local CPA… with experience in cannabis.”
Because the cannabis industry is a new and evolving space, and public officials are constantly working to revamp and revise rules and regulations, it’s also likely that the regulations that apply to your cannabis business will change. Engage with an experienced attorney who can look ahead, according to Jess Gonzalez, a cannabis and intellectual property attorney at Bressler, Amery and Ross PC.
“Given the wide range of regulations across the country,” Gonzalez said, “the best way for people to stay on top of what their state demands is to hire a lawyer who can comprehend the regulations and legislation.” “We all recognize that the cannabis industry is constantly changing, so as… entrepreneurs, we must be ready to pivot at any time.”
Banking, financing and insurance challenges
Banking is a significant stumbling block for cannabis businesses. Despite the fact that cannabis is legal in many states, the federal government still considers it an illegal Schedule I drug under the Controlled Substances Act, many banks are hesitant to work with cannabis businesses for fear of losing their FDIC status or facing money laundering charges related to “drug trafficking.”
“In any other industry, you could register a company bank account and call your LLC or corporation whatever you want,” Gonzalez explained. “However, if you go to the bank and your name contains the word ‘cannabis,’ you may have a difficult time getting a banking partner. I’m not suggesting that you lie to your bank about what you’re doing, but… having ‘weed’ or’cannabis’ in the entity name cuts you off at the knees.”
“I always urge people to avoid those names when forming an LLC or business since it restricts banking and insurance alternatives,” she noted.
Advertising and marketing restrictions
State rules and private company standards limit how cannabis enterprises can advertise themselves. Not only is it illegal to advertise cannabis on the radio, television, or billboards, but many local marketing channels, including as Facebook, make it difficult to buy sponsored content for cannabis businesses. As a result, many cannabis companies must rely on a mix of content marketing and more organic social media material, email marketing campaigns, and in-person marketing possibilities at trade exhibits and industry events. Networking and word-of-mouth referrals are critical marketing tactics for cannabis businesses.
Stigmatization of cannabis
Cannabis continues to be associated with “stoner culture,” despite the fact that cannabis patients and consumers come from a diverse spectrum of backgrounds. Avoid perpetuating cannabis preconceptions, such as the head-shop atmosphere or the subterranean associations associated with nearly a century of prohibition. Instead, to be a responsible member of your community, work closely with community stakeholders and elected leaders. This will go a long way toward not only obtaining the necessary governmental permissions, but also increasing accessibility to your target clients, who are more likely than you may imagine to be turned off by the stigmatized trappings of the past.
“There are historical assumptions about who cannabis users are,” Rudder explained. “They are moms and dads, lawyers, pipe fitters – it runs the gamut of who cannabis consumers are. Cannabis’ base is as a medicine, and it will be for a very long time. It’s critical for people to understand… the science and medical side of the sector.”
“The customer, whether a patient or an adult-use consumer, is getting smarter and conducting their own research,” he noted, “and you need to have those answers when people start asking questions.”
Key takeaway: Cannabis businesses encounter numerous problems, but they may be addressed by forming your firm with these challenges in mind and developing the correct plan and alliances.
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