Not too long ago, perhaps, the largest obstacle that would crop up while planning a cannabis business was that the product itself used to be illegal. Today, with most places green-lighting the sale of recreational and medicinal marijuana, weed itself is no longer the problem.
Instead, entrepreneurs planning to launch a cannabis brand must navigate through the legalization labyrinth of different states to figure out the licensing guidelines, legal compliance, changing regulations, hesitant banks, and a US Federal Policy that continues to consider marijuana possession a punishable crime officially with jail time.
Oh! You must also have very deep pockets as well!
However, with the projected sales of cannabis globally, it is expected to actually reach 33.6 billion dollars by 2025, as per Investopedia. The upside advantages of trying to launch a cannabis brand appear auspicious.
For any high-level overview of the primary aspects of how to start any cannabis business, including obtaining an insurance policy specifically tailored to the insurance needs of different cannabis companies to cover yourself as well as your property, keep reading!
How To Start A Cannabis Business From The Scratch? From Market Research To State Licensing:
As with any business venture, starting a cannabis business needs a set of steps relevant to all startups. You will have to cover the basics of your cannabis business and follow the most effective practices of management and startups. So, without wasting time, here we go!
Market Research On Starting A Cannabis Business:
You will want to research the market to find out what area of the industry you want to enter exactly. Do you want to grow it on your own? Do you want to get in on Cannabis 3.0? Also, do you want to begin a delivery service? Do you want to start a dispensary? Do you want to move your hobby to a professional kitchen?
Ideally, your market research should help you out in terms of determining what services and products are missing in the market and identifying the areas where you can specialize.
Cannabis Business Plans:
Next, you will have to work on a business plan, which includes how to actually structure, market, or run the company. One element that is vital to your cannabis business plan is how you intend to fund your startup. Starting a cannabis business can be very expensive, and it should be as such a business does involve real lives as well.
But with equipment and licensing costs alone running a six-figure territory, you will definitely need solid financial planning and deep-pocketed investors or partners.
One area where the industry differs from conventional business startups is the mandate for special inventory management software known for tracking cannabis plants from small shoots all the way to when consumers buy them.
Known as the seed-to-sale software, it is available for multiple vendors who can actually help you set the same up while integrating it into the workflow of your company. It is a good idea to begin researching the software early so that you can plan the expenses and select a product that suits your business the best, considering there are multiple options available.
Once you have secured your basics, you will look at different physical locations to start your headquarters, select and register the name of your business, and obtain the required license needed for running a cannabis business in the state where you will be doing your business.
Every state has various rules as well as requirements for the sale of marijuana. Plus, in every state where marijuana is legal, the government has a website explaining the complete procedure as well as associated costs for obtaining proper licenses.
Securing Funding For Your Cannabis Business: It’s All About The Money!
New entrepreneurs have to go through the reality of costs for startup businesses. Those launching a cannabis business might have relatively more expenses as compared to a typical business. If you realize that you cannot cover all the initial expenses on your own, then you might seek funding to start your cannabis business.
This is another reason why you want to work on a thorough business plan. Any lender or investor you are likely to approach for funding will definitely ask some vital questions – whether you have thought out your business well and how you plan on turning profits.
And once you begin to think about financing, whatever you think you will require, just add an extra forty percent. The startup expenses for the cannabis business happen to be a major deterrent for multiple folks. Depending on your actual cash flow, you have some options for funding your business.
1. Start A Cannabis Business In A Newly Legal State:
If it is possible, start your cannabis business in a state that has been newly legalized. The competition will not be as aggressive as in states that have a longer marijuana legalization history, like Colorado and California.
Your investors might already have saturated states that have actually been legal for a while and might even be interested in entering new states with more opportunity and less competition.
2. Choose A State With Lower License And Application Fees:
The expenses of applying for getting your business certification and a license can vary wildly from state to state. As per the Cannabis Business Times, Maine, for instance, opts to use a caregiver model, charging 300 dollars as an application fee. On the other hand, Florida gets businesses to operate as medical marijuana treatment organizations, charging 60,000 dollars for applying to open a center.
3. Taking Advantage Of ‘Accelerator’ And ‘Incubator’ Programs For Social Equity:
If you are part of a conventionally underserved or overlooked group (minority communities, for instance), it is a great time currently to seek seed money from companies trying to level the playing field, like The Initiative situated in Portland, Ore, as well as Fluresh in Grand Rapids, MI. Both these groups provide mentoring as well as support.
Now that you know how to start a cannabis business, let’s talk about the important role played by networking in the cannabis community.
If you are wondering why you might be looking at celebrity names such as Martha Stewart, Jay-Z, and Seth Rogan launching new cannabis product lines, it is because more recognition is critically important for the success of startups, particularly for emerging industries such as cannabis.
While you might never get to rub shoulders with people like Snoop Dogg, you can still make the most of opportunities in order to just get your name out there, meet new people, and build connections.
There are several cannabis-focused business networks that have been launched over the past decade, adding a sophisticated, professional polish to this particular business sector. These include Vangst, Weedlife, and Leafwire. When you start your cannabis business, it is helpful to stay involved and be updated with the industry as a whole.
Becoming an active and engaged participant in the entire cannabis community is the perfect way to find out from others, talk about strategies, and hire employees. At the same time, you can use these community networks to establish your brand as a thought leader in your specific niche or industry.
Gaining followers online is also a super smart approach to get your business recognized and stand above the masses.
Finding Funding For A Cannabis Business Is Difficult:
Cannabis businesses might have a hard time finding any good small-business loans to ensure that their businesses operate smoothly.
The lack of financing for small business financing for cannabis businesses stems initially from the fact they are illegal businesses federally.
Most of the banks that give small-business loans usually operate on the federal scale and happen to be subject to federal banking rules that make lending to a cannabis business almost impossible. Big banks are not willing to take any risk of being spotted as aiding activities that are actually considered illegal under federal laws.
So, the majority of the time, big banks will not lend money to any marijuana business. However, alternative lenders have managed to fill in some gaps in terms of lending to cannabis business owners.
However, before diving deep into launching a cannabis business, you need to be familiar that your funding and financing options will definitely be limited compared to what a more conventional business could actually secure.
Risk Management In Starting A Cannabis Business:
Launching any business is a risky affair. But the risks of launching a cannabis business are plenty – and they aren’t really obvious all the time. For the ones eager to make a name for themselves in the cannabis industry, the different risks just add a few other layers of challenge that can easily fuel their passion.
Although it takes plenty of time, money, and energy, it is absolutely vital to do a risk management assessment to identify the risks in your particular organization.
An assessment for risk management will check multiple key areas of risks, including operational risks (the daily events associated with running a business), reputational risks (how the public perceives your company), financial risks (expenses and debts), and compliance risks (how well your business adheres to guidelines).
Risk management is tied closely to insurance coverage simply because insurance underwriters need to assign a kind of monetary value to individual risks for properly insuring against them.
Since risk management is specialized in the marijuana industry, it is a good idea to work in collaboration with a risk manager who has experience in the evaluation process for risk assessment in your particular niche as well as in the state where you want to do business.
Insurance For Starting A Cannabis Business:
Depending on the kind of cannabis business you are launching, the insurance coverage you require will vary. For instance, if you are opening a self-funded delivery or dispensary service with employees, you will require an employee’s comp policy in addition to your other coverage.
But you probably will not need an E&O (Errors & Omissions) policy, which is the kind of insurance covering advice as well as services. On the other hand, if you are running a cannabis testing lab or even employing medical professionals, you will have to add E&O to your coverage policies to protect against potential claims of errors, omissions, and negligence.
If you are actually planning to grow your plants and sell them when you start your business, then you will need crop coverage to protect your plants against risks related to cultivation. The expenses of insurance for your cannabis company will also vary.
Finding The Right Insurance Always Pays Off: Here’s Why
Clearly, the insurance coverage for a cannabis business has certain guidelines. The good news here is that just as the industry has evolved by leaps and bounds in a relatively short time, so has the insurance market. New tools, services, and products are now available that address the particular needs of whatever type of cannabis brand you can think about.
And It’s A Wrap!
Now that you have a fair idea about how to start a cannabis business, the best idea that we can give you is to simply pre-plan everything and ensure that you are well-funded!
Taking into consideration the many intricacies and complications of the cannabis industry, new entrepreneurs should think harder and longer about whether starting a cannabis business would be the right move for them.
The excitement of the revenue-earning potential in a relatively new as well as rapidly evolving industry needs to be weighed against the probable downsides – namely, the regulatory burden, the financing struggles, and the costs.
If you do decide to go ahead with your cannabis business, then you need to think about additional steps, including obtaining business insurance, looking for retail spaces, and hiring employees.