The cannabis sector is prepared to enter many new areas. Could this be your chance to start a new business in a booming and competitive market? Every state in the United States has its regulations governing the medicinal and recreational use of cannabis, and every company must abide by these rules. Cannabis remains illegal at the federal level, but enforcement against state-legal enterprises has mostly been suspended and lacks congressional funding, keeping these marketplaces safe. This article is for entrepreneurs who wish to start a cannabis business but need to grasp the legal aspects of this increasingly complex and expanding industry.
A dozen states were preparing to place cannabis legalization initiatives on their ballots in 2019. Due to the COVID-19 outbreak and stalled petitioner efforts, that number has been reduced to five states. Nonetheless, if these ballot initiatives pass, the cannabis sector may see the development of existing markets and the introduction of new ones. Now could be the moment if you’ve been thinking about starting a cannabis business.
The Worth of the Cannabis Sector in the United States
The cannabis industry in the United States is expected to be worth $30 billion per year by 2025. This estimate comes despite the legalization of medical marijuana in 33 states and Washington, D.C., and the legalization of adult-use cannabis (also known as recreational use) programs in 11 states and Washington, D.C.
As cannabis-legalization movements spread to new states and some members of Congress urge reform, including federal legalization, the cannabis sector may soon enter new markets. With the United States and Canada driving much of the industry’s expansion, cannabis will score multiple legislative victories across Europe. Users are already obtaining cannabis seeds from internet shops and cultivating the plant for personal use.
How to Get Started in the Cannabis Industry
It’s simple to think of the cannabis sector as farmers who cultivate the plant, manufacturers who process it into goods, and dispensaries who sell those products. While these components are essential to the legal cannabis supply chain, the cannabis industry is far more complex and diverse.
Cannabis businesses are divided into two categories: plant-touching and ancillary enterprises. Here’s a closer look at each, as well as some examples of companies in each area:
Cannabis Businesses that Touch Plants
Plant-touching enterprises include those associated with the cannabis sector, such as breeders, cultivators, manufacturers, and dispensaries. Other plant-touching enterprises, including transportation and delivery companies that convey harvested cannabis and finished products from point A to point B, maybe less evident. Plant-touching firms are the most tightly controlled in an already heavily regulated industry.
Breeders – Breeders are concerned with the propagation of existing cannabis strains and the production of new strains through selective breeding. They are also in charge of producing cultivator seeds and finding and propagating the highest-quality genetics for future generations of plants.
Cultivators – Cultivators oversee massive growth facilities typically maintained indoors in enormous structures such as warehouses. They use various cultivation techniques to create healthy, high-quality cannabis plants, harvested and frequently sold wholesale to processors or dispensaries.
Manufacturers – Manufacturers, such as extractors, are in charge of transforming harvested cannabis flowers into completed products like concentrated extracts, edibles, and topicals. As a result, manufacturers can provide a wide range of cannabis products on dispensary shelves.
Dispensaries are the cannabis industry’s distribution hubs, acting similarly to retail storefronts in other sectors. Dispensaries approach the point of sale differently, but they often keep a staff of experienced personnel on hand to assist patients and consumers in making the best purchasing decision based on their needs and preferences.
Transportation and logistics – The cannabis industry could not exist without a transportation network. Truck fleets transport cannabis flowers and goods from vendors to purchasers and the equipment cannabis businesses require.
To start a plant-touching business, entrepreneurs must often get licenses through an application procedure that can be time-consuming and costly, with no assurance of success. Licensing application processes differ by state, although there is often a cap on the number of licenses available, similar to how liquor licenses function.
Some states demand vertical integration, which means that the same corporation handles the cultivation, processing, and dispensary operations. On the other hand, other states use a specialized system in which permits for each type of business are maintained separately and are frequently issued to different corporations.
Cannabis-related Businesses
All other sorts of cannabis enterprises are classified as ancillary cannabis businesses. These businesses must assist plant-touching companies but are not required to be involved in the breeding, cultivating refining, or distribution of cannabis products. They may include experts such as lawyers, marketers, and organizations that provide packaging or machinery that can improve the procedures of plant-touching businesses.
Lawyers, accountants, and digital marketers are examples of professional services recognizable to organizations of all sizes. They are also critical for marijuana firms. Given the considerable legal limits and highly different regulatory frameworks from state to state, these professional advisors must have additional cannabis business expertise.
Packaging companies rarely touch the plant instead of focusing on regulatory compliance, shelf attractiveness, and branding. Packaging firms must consider business requirements and demonstrate company branding. Colorful packaging or specialized branding strategies are forbidden in many states.
Equipment – Plant-touching firms require a wide range of equipment to function correctly. Manufacturers, for example, employ massive equipment to extract components from harvested cannabis flowers to generate cannabis oils and waxes. Similarly, producers may flash freeze their harvested flower to keep it fresh throughout shipping.
Construction – Because cultivation facilities and dispensaries must typically be developed according to state rules and regulations, there is a high need for contractors experienced in building these facilities.
Investment – Because cannabis businesses are generally excluded from traditional financing alternatives, private financiers such as venture capitalists and angel investors have entered the industry to provide cash. Furthermore, private family offices and private wealth management advisory firms serving high-net-worth investors are familiar sources of financing for cannabis businesses, and investors have taken an interest in this fast-growing market.
This is especially crucial for plant-touching companies, which face thousands of dollars in application fees and require significant funding to maintain legal compliance.
While many people are enthusiastic about the potential of launching a cannabis-related business, auxiliary enterprises may offer a reduced barrier to entry. Compared to many non-cannabis companies, ancillary companies face extensive regulation, but they do not have to compete for a license through a rigorous and costly application process.
Furthermore, numerous ancillary businesses can be launched by expanding your existing firm into the cannabis industry or creating a new brand directly related to cannabis.
A digital marketer with years of expertise developing websites, running social media campaigns, and buying advertisements for customers, for example, might swiftly pivot into the cannabis field with little research and networking.
Common Cannabis Business Challenges
Cannabis businesses confront additional hurdles and those faced by startups in other industries. Navigating these hurdles in the early stages of your firm and laying the groundwork to adjust when regulations change will be crucial to your success in the cannabis market.
Here are some frequent obstacles that cannabis businesses face, as well as some solutions:
Creating the right alliances
Going it alone in the cannabis sector is challenging, if not impossible.
However, the early alliances you form can make or ruin your young cannabis firm. How you create your firm in the beginning is vital to its long-term success. To offer your team a competitive advantage, you must build alliances and relationships across the country — the proper processes, the right SOPs [standard operating procedures], and the proper security plan. Look for a cannabis-experienced local attorney and CPA.
Changing Regulations
Because the cannabis sector is new and evolving, and public officials are constantly working on redesigning and modifying rules and regulations, the restrictions that apply to your cannabis business are likely to change. Work with an experienced attorney who can see the big picture. Given the variations in requirements across the country, hiring a lawyer who can comprehend the regulations and statutes is the best way to stay on top of what a state demands. Then, be ready to change course at any time.
Banking, Financing, and Insurance
Banking is a significant source of concern for cannabis businesses. Because the federal government considers cannabis an illegal Schedule I drug under the Controlled Substances Act, many banks are hesitant to work with cannabis businesses to lose their FDIC status or be charged with money laundering for “drug trafficking.” However, cannabis is legal in many states.
Restrictions on Advertising and Marketing
State legislation and private company policies restrict cannabis enterprises’ ability to advertise. Not only is cannabis advertising on radio, television, or billboards frequently prohibited, but many local marketing channels, such as Facebook, make it difficult to restrict the purchase of sponsored material for cannabis firms. As a result, many cannabis companies will have to rely on content marketing and more organic social media material, email marketing campaigns, and in-person marketing possibilities at trade exhibits and industry gatherings. Furthermore, networking and word-of-mouth referrals are critical marketing tactics for cannabis businesses.
Cannabis Stigmatization
Cannabis is still stigmatized as being only about “stoner culture,” but cannabis patients and consumers come from diverse backgrounds. Avoid perpetuating cannabis preconceptions, such as the underground associations associated with nearly a century of prohibition. Instead, to be a responsible member of your community, collaborate closely with community stakeholders and elected leaders. This will go a long way toward obtaining the required governmental permissions and widening accessibility to your target clients, who are more likely to be turned off by the stigmatized trappings of the past than you may expect.
There are historical preconceptions about who cannabis users are. They are mothers and fathers, lawyers and doctors – they represent the entire spectrum of cannabis users. Cannabis’s basis is and will be a medication for the foreseeable future. People must grasp the industry’s scientific and medical components. Whether a patient or an adult-use consumer, the consumer becomes more knowledgeable and conducts research.
When people start asking questions, you must have responses ready. Cannabis businesses encounter numerous problems, but by designing your firm with these challenges in mind and developing the necessary plans and alliances, you may overcome them.