The marijuana industry continues to evolve at a staggering rate. Regardless of what changes may come, successful marijuana businesses and their employees will need to focus on a few key business fundamentals in order to thrive in this new, ever-changing marketplace.
For every way that a business can succeed, there are hundreds of ways that it can fail. This is just as true in the growing marijuana market, which while being an ever-expanding economic Colossus, some investors are viewing with a skeptical eye. Those who feel bold enough to start new marijuana businesses without acquiring the requisite knowledge may soon find themselves joining the ranks of the disenfranchised and disappointed, as more and more “hot” marijuana-based businesses fail to leave the nest after hatching.
In the effort to mitigate risk, adhering to a few common sense, proven approaches will create a greater chance of success. The fact that so much money is now being made with marijuana is just one reason entrepreneurs should consider entering the market. There is research to be done, rules to abide by, regulations to conform to, and ways of transacting business that are unique to the industry. To help both newcomers and industry veterans, here are a few crucial keys to being successful in the cannabis industry:
Investment and financing are probably the biggest hurdles for entrepreneurs looking to make a formal entry into the marijuana market. There is a tendency for some to see the success of other marijuana cultivators, dispensaries and service providers and to use that as an impetus to move capital into a venture that may not be funded well enough to even get the early traction needed to support mid and long-term growth.
The key here is to do exhaustive, far-reaching research into the target market, taking into consideration every cost variable related to obtaining operational space, hiring workers and distributing or wholesaling product. Planning for investing and financing should, at the very least, incorporate at least some guidance from industry professionals who understand the current landscape. An alternative strategy would be to find a top consulting firm that already has done this legwork to help you.
Kush Bottles is a great example of structuring a company in such a way as to serve the marijuana market without explicitly dealing with marijuana itself. Their CEO, Nicholas Kovacevich, recently delivered a speech to the Cannabis World Congress about the growing importance of maintaining adherence to regulatory policy and business governance in whatever state marijuana operations will be taking place.
This is a strategic structuring that resulted in the creation of a company that is now traded publicly and doesn’t have to abide to banking laws that currently hamstring many financing initiatives for marijuana businesses.
The key here is to have a plan for how different areas of a marijuana business can be silo-ed – will cultivation operations be executed by the same company that distributes the end product? Would it make more sense to structure a multi-dispensary business unit in a different way, paving the way to easier compliance and regulatory clearance?
It may be possible to become a quick flash in the pan if you’re wanting to make a fast buck in the marijuana business. It may even be possible to hire a few employees to take the strain of off day-to-day operations for you. However, as the marijuana paradigm in the US continues to evolve, there will come a time when strategic partnerships may make or break cannabis companies. It’s very difficult for a cannabis company to thrive on its own, and the ones that actively seek business partnerships which are mutually beneficial and founded on industry expertise will be the ones who will lay claim to long-term success.
The key is this: don’t make the mistake of thinking you can do it all yourself, or that you have enough niche knowledge to build a stand-alone marijuana operation that will succeed without partnerships.
Now more than ever, marijuana consumers have a vast array of marijuana and marijuana-related products at their fingertips. What was a confined market of only a few hundred thousand medical patients has ballooned into a recreational opportunity encompassing millions of potential customers. This means that having a diverse, remarkable, high-quality product that stands out from the competition is absolutely critical. This hasn’t always been the case; just five years ago you might have been able to get away with copycatting someone’s product or business. Now, consumers are too well-informed about marijuana to be sold so easily.
Diversity can mean providing a unique customer experience unrelated to the marijuana itself. It might mean having a value-add component, like a customer loyalty program to keep business growing month-in and month-out. Differentiation is done by thinking creatively and constructively about what would really make a product shine in comparison with the competition. Not doing this would be sheer neglect, and customers will ignore you.
…and it’s absolutely true. Having a modern, realistic business plan with contingencies built into it is absolutely critical to the success of a new marijuana company. If there is not a well-thought out, defined set of goals related to each moving part in the business, it won’t be long before investors will feel lost and anxious. After all, how will you know if your overall business objectives are being achieved if there aren’t benchmarks, phase completions and landmark goals established and met, first?
Goals shouldn’t be lofty, pie-in-the-sky hopes that hang on undefined variables. Make your goals tangible, with measurable criteria. What doesn’t get measured can’t be improved, and successful marijuana cultivators in particular know this better than anyone else.
The broad yet highly important concept of integrity is crucial to both the small and big picture in terms of success in this highly competitive industry. In many ways the cannabis industry is analogous to the gold rush, acting in a rapid boom and bust fashion with entrepreneurs constantly entering and exiting this tumultuous market. Yet unlike the gold rush, there are many interested industry participants looking to make the cannabis industry into a long-term career and revenue generating opportunity. In order to accomplish the long-term vision of success a responsible business owner should have the theme of integrity implemented in every aspect of a cannabis company. This involves providing transparency, accountability, and feedback from consumers, employees and community stakeholders. Legal cannabis has already been placed under a fine lens by advocates and opponents alike, so exercising a responsible modern business atmosphere is crucial to an individual entering the cannabis industry. Ultimately the overall effect of working with integrity will bring a level of sustainability that the cannabis industry needs to be not just a short-term boom but a long-term staple of the American economy.
James Marland, Chief Executive Officer of The Grow Division, reminds us of the importance of effective marijuana marketing in this quote:
The operative word here is ‘creatively’. Why? Because marijuana consumers are more and more demanding every day, and what is going to win is the business that reaches them in a way that is memorable and unique. So you have the best, most impressive strain of marijuana anyone has ever seen? So what; so do dozens of other companies that have bigger bank accounts and more brand loyalty than you do. So how are you going to market around them?
Not having answers to questions like this will spell impending doom for new marijuana businesses. As it pertains to branding, just hoping your product is intrinsically good enough for people to want to buy will not be sufficient. Conceiving a marijuana brand that has longevity, with all of the related activities that go with that (social media management, paid advertising, search engine optimization, etc.) takes serious creative ability, and it’s not something that should be undertaken without proven expertise.
For growers and cultivators, the need for a solid brand is as important as cultivation practices. Here, however, we see the need arise for distribution models that make logistical sense – not just for the growers but for the customers too. For a cultivation operation to build a brand, market to local dispensaries or wholesalers, as well as to instate common-sense distribution practices is no small feat, and it’s certainly not something that should be done by business developers who don’t understand how the marijuana market is different from other consumer markets. The penalty for failure in developing efficient distribution channels can be the catastrophic end of an entire business that might have had done everything else well.
The key takeaways here are these: Plan to spend time, money and resources specifically on branding, marketing and distribution, but do this in proportion to what make sense for the market and business structure that is being considered. As with many of the other facets listed here, obtaining guidance from knowledgeable industry experts can only help to ensure your success. Even though there may be unforeseen variables that will impact how a new marijuana business fares, remembering these keys to success will help mitigate the risk of failure in the cannabis industry.