If you’re looking to break into the cannabis industry, you’re not alone. Smart investors and entrepreneurs are taking notice of the upswing and increased demand in CBD and THC. Not to mention, more states are legalizing their use every day, which means a larger audience and broader customer base.
You need basic business fundamentals and other valuable resources to succeed. And here are just a few of those essential elements to consider before starting on your journey.
1. Assess the Industry
Every good entrepreneur knows that before entering any business you need to assess the industry.
There are certain key elements to consider including competitors, potential for earnings (including budget and margins), risks, and growth opportunities. Having a basic knowledge and understanding of the cannabis industry is crucial.
Even if you’ve never tried CBD or smoked a single puff of marijuana in your life, you need to educate yourself on its many uses, benefits, pitfalls, and obstacles.
You can’t start selling CBD as merely a business owner with no experience in the field. But the same holds true on the reverse side. You can’t start a cannabis business simply because you love marijuana and how it makes you feel. These two character traits and elements need to work together in order to successfully run a CBD business.
When you understand the potential risks, opportunities for profit, and who you’re competing with, you can craft a strategic marketing plan and track your businesses progress and growth over time.
Your cannabis business also needs the same key elements that every good business needs – reliable employees, a payroll system, managers, customer service representatives, and even cannabis accounting.
2. Consider Your Market and Location
Now that you have a basic understanding of the cannabis industry, it’s time to hone in on your target audience and where you plan on establishing your business.
Most cannabis businesses operate online for several reasons. First, it’s convenient and easy. It’s also where a majority of consumers do their shopping. If you don’t have a quality website or well-established ecommerce store for your CBD business, you can count yourself out.
You need a user-friendly website that’s easy to navigate and gives buyers all the information they want and need about your products and the selling process.
It’s also important to have your contact information clearly displayed on the main page (or even every page) of your site. This portrays a sense of trustworthiness when the consumer knows they can reach you at any time with questions or concerns.
But who exactly are your consumers? That’s another important part of the equation. Knowing your target audience, or avatar, and market will help you design your business around their specific needs. Are your buyers women or men? Are they millennials or an older generation? Are they searching for stress or insomnia relief or is their purpose recreational?
Once you’ve determined who’s buying your product, you can steer your sales towards this market, including packaging, advertising, and even the types of products you offer. CBD gummies may appeal more to a younger generation where oils and ointments are more convenient for older users.
Location is key too in terms of legality. Although CBD and marijuana for medical uses (and some recreational) has been legalized in many of the 50 states, it still remains an illegal substance under federal law. This makes distribution tricky at times.
Before you set up shop for your CBD business or launch your business online, make sure you understand and are compliant with the laws in your given state or those you’re selling to. Because there are so many gray areas in terms of what’s legal and what’s not, it’s important you remain up to date on new regulations and conduct your business legally.
3. Understand Operating and Financing Procedures
Starting a new business isn’t cheap. The old adage “it takes money to make money” is fairly accurate. And it’s especially accurate when breaking into the cannabis industry.
Even in states where the use and sale of marijuana and CBD are legal under state law, getting approved as a dispensary is complicated and costly. The application process is daunting and many potential sellers quit before they even get started. Not to mention, depending on the state you live in, the non-refundable application fee can cost between $200 and $20,000! That’s a huge chunk of change that most entrepreneurs don’t count on and aren’t prepared to pay.
Not only is the paperwork and fees expensive for CBD business owners, but the equipment needed to cultivate and distribute the products can get pretty costly.
Other things to consider are labor costs, insurance, and advertising fees. Taxes for the cannabis industry are also higher than other small businesses because many distributors don’t qualify for tax deductions and credits.
And if you’re looking for financial backing for your CBD business, good luck! Sadly, very few banks are interested in financing any businesses related to the cannabis industry. That’s because many banks and lending companies operate on the federal level, making them subject to federal laws. And don’t forget that CBD and marijuana are still illegal under these laws, regardless of state jurisdiction.
That means all your financial backing needs to come from within and for most entrepreneurs, limited loan opportunities make starting a business nearly impossible. Try searching for alternative lending options or smaller banks or credit unions that aren’t held to federal standards.
There’s no shame in starting small if you want to break into the cannabis industry. This is actually the perfect way to learn the market, understand what works and what doesn’t, and navigate the inner workings of your production, distribution, and sales.
Just be sure to plan ahead financially and be prepared to navigate legal waters throughout your company’s existence.