The Nuts and Bolts of Getting into the Business of Cannabis
When thinking about the Cannabis industry, most people don’t immediately consider the financial side of it. The reality is that the legal marijuana business—medical and recreational—is a major industry in the United States, estimated at over $7.1 billion in total revenue for 2016. The ArcView Group, an investment firm with roots in the cannabis industry, estimates that gross sales could easily jump to over $10 billion annually within the next year. That is an almost unprecedented level of growth in any industry, to say nothing of the fact that ‘new industries’ are harder to come by for those who want to get in on the ground floor. As a solid and reputable growth area, it’s still in its infancy, but cannabis has the potential to be an industry worth pursuing for ‘budding’ entrepreneurs.
Investing in cannabis is recession proof
When times are hard, people still want certain things in life, certain little luxuries or privileges. As a result, the cannabis industry, like the liquor business, is relatively recession proof. And as the use of cannabis has become more socially acceptable, particularly in the area of medical marijuana, where the sanction of the medical profession allays the fears that some might have of the business, the demand has been growing steadily. It’s still an industry in its infancy, relatively speaking, which means that there is also tremendous opportunity for those who want to take risks in a new industry.
Now that I have been in the industry for a while now, I am glad I took the risk as our products have been very well received, we are able to impact the lives of our consumers, we are able to bring a number of innovations to market and the business continues to grow on a daily basis.
Financing and building a cannabis business: risk vs. reward
The social acceptability of marijuana, particularly relative to other drugs and substances, has created a unique situation in that the demand is very high but the future of the industry is as yet still uncertain. Not having reached the acceptability level of substances such as alcohol means that the cannabis industry is riskier and might end up, through government controls or other interventions, looking quite a bit different in a few years time than it does today. This possible volatility makes some investors weary. They want to know that their investment is solid and putting money into infrastructure and a business with a fairly high overhead, it’s clear that the business of growing marijuana does not come with many guarantees. That said, the risk invites opportunities that are unparalleled in any other industry and the entrepreneurs willing to take on those risks will have a tremendous ground floor opportunity.
For example, we have found great success in leveraging best practices and scientific breakthroughs from other industries to elevate the quality of our product, such as our Modified Atmosphere packaging which allows us to preserve our products freshness and deliver a consistent experience. Over time, we hope that our dedication to quality, preservation and organic growing methods will push the industry as a whole to raise their standards.
Raising standards and elevating the industry can only serve to improve the acceptability of growing and selling cannabis, as a business; the result of which will be greatly diminished risk for all.
Determining expansion plans in a new market
While the growth and sale of a substance is not a new business model (think tobacco), cannabis, through it’s use as a medical intervention, is on a different level from pure pleasure and recreational values. This creates different market opportunities for the entrepreneur who is looking for future growth. Ultimately, like so many products, there will eventually be a mass market production quality of cannabis and a ‘craft market’. The value differential will be enormous but the markets for each are also very different, so there is a place for both in the industry.
At Honest Marijuana, we value quality above all else. As a result, we plan to remain a craft grower as we believe this is necessary to consistently provide the highest quality user experience. We also believe this will allow us to innovate faster than other growers.
Like most any industry, as it grows, the focus will turn to getting the customer’s attention and keeping it. A large element of that will be ensuring consistent, quality products are available. It’s the natural evolution of any product based business model.
The politics of weed
While the future of the political climate is uncertain, I am confident that cannabis will continue to gain acceptance throughout the country. It is difficult to deny the medicinal benefits of the plant, the increasingly growing demand for the plant and the financial benefit to cities and states.
The bottom line is, as always, money. States that understand the financial value of making marijuana mainstream—and taxable—will see their revenues blossom. Taking cannabis out of the hands of the criminal element will also eliminate a lot of the uncertainty that surrounds the industry still and will save millions of dollars spent prosecuting individuals for the use of this relatively benign substance. The medical benefits are legion and with Baby Boomers getting older, the quality of life issue when dealing with pain is relevant and important.
Advice for someone getting into the business of Cannabis?
It is an amazing time to enter the cannabis industry as it is still young and will evolve over the coming years. As a result, there is plenty of opportunity to build a business, innovate and truly create something new.
The key is to look beyond the basic grower model and into the various areas of development of cannabis-related businesses that are still relatively untapped: legal dispensaries and retail establishments, edible or infused products, services related to security and consulting, hemp products (as an offshoot). It’s not the gold rush it was in the early days where all a company had to do was stake their claim and watch the green-gold roll in. The evolution of the industry means that entrepreneurs need to think beyond the basics.
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- The Nuts and Bolts of Getting into the Business of Cannabis - January 12, 2017