According to the Bureau of Labor Statistics, around 70 percent of small businesses fail in the first 10 years. When that small business is in the cannabis sector, the chances of failure are even higher.
As more and more states legalize cannabis for medical and recreational use, more and more entrepreneurs are looking to enter the market. Like all new businesses, though, they face tough challenges. But the nature of the product adds extra levels of complexity, not least because the regulatory landscape is incredibly variable and cannabis is still illegal at the Federal level.
What looks like an appealing opportunity-rich sector at first glance can quickly turn into a tricky area of business. It is not for everyone. But if you wish to establish or invest in a cannabis business, the following key steps will improve your chances of success.
1: Choose your state wisely. Eighteen states plus D.C. have legalized recreational cannabis use. More are in the process of formalizing detailed regulations. But that does not mean that each of these states is the right place for your business.
For most start-ups, state taxes will be a dominant factor in choosing location. While that is still true for cannabis businesses, the really key consideration is licensing. Some states like California have no limits to the number they make available – but that means intense competition and low prices. New York, however, is looking to limit the number of licenses issued, which will ensure better control over production and market volumes and allow for more competitive pricing. But it also means licenses are harder to obtain and makes it almost impossible to vertically integrate production, distribution and sales.
Elsewhere, some states limit what products can be sold in-store; others require applicants to have a specified level of liquid, land or building assets; still others require licenses to be renewed annually. In Maine, license applicants must be residents for four years. In New York, green and social equity initiatives are being integrated into cannabis business regulations.
Whatever the licensing requirements, they will inevitably affect your prices, competition and business growth prospects.
2: Understand the geographical nitty-gritty. Regulations are not just a state-level issue. Cannabis businesses are subject to local zoning and environmental impact plans, and the requirements of individual municipalities. Like it or not, some towns simply do not want cannabis retail in their neighborhood – and have voted it down. In New York, the Office of Cannabis Management is expected to consider both geographical and census information when determining who gets a license, as well as the number of licenses to be issued.
Like state governments, local authorities are walking a very fine line. In Massachusetts, cannabis clusters have developed in certain neighborhoods as they are squeezed out of others. What’s more, communities that are too restrictive run the risk of the illicit market filling the gap. All these considerations will have a very real impact on the future success of your business.
3. Weigh risks and rewards. This is something every entrepreneur has to do, but operating within a highly regulated industry like this comes with above-average cost burdens. You need to be sure that this is something you really want to get into as an entrepreneur. Just because the opportunity is there doesn’t mean that sustainable profits and long-term success will inevitably follow.
You will naturally need sound knowledge of the cannabis business, whether in retail or cultivation, but you will also need the acumen and the know-how to run a business. As an entrepreneur you have to master all these components and make a fully informed decision as to whether the advantages outweigh the disadvantages.
To Read The Rest Of This Article By Matthew VanDerbeck on Benzinga
Published: March 29, 2022
Founder & Interim Editor of L.A. Cannabis News