Every new industry experiences rapid growth as the aspiring-billionaires rush in to capture first-mover profits. Then reality sets in, and many early startups fail to withstand the ravages of reality. Wreckage left by these companies, such as buildings, patents, and other assets, is scooped up by the remaining companies and other startups that have been waiting and learning. The cannabis industry is currently going through this consolidation stage.
Consolidation is followed by a new phase of growth. For example, most of the leading companies on the internet got their start during the growth phase that followed the dot-com failures and industry consolidation. So, if you’ve been considering getting into the cannabis business, now may be the time. However, there are a few reality-based considerations:
Regulation
More than half the states in the U.S. have legalized marijuana use to some degree. Tax and fee income was a major reason for states and municipalities to embrace the cannabis business, but this friendly embrace came with its own set of fears and worries. These fears led to intense regulations and control agencies.
Each state has its own regulations, and its municipalities also each have their own sets of regulations. The same goes for applications, fees, and taxes. Tracking systems monitor each plant from seed to sale. That means the identification number on the seed packet goes with every seedling and through every transplanting and cloning process. Every part of this process must be reported to your state’s tracking system. Most states use the METRC tracking system, but other states use other systems. All systems connect to hand-held devices and your computer system.
Each seed ID is connected to a single plant, and each plant is part of your inventory, so you must have an inventory monitoring and control system that connects to your tracking system. The tracking system follows each bud, all shake, all derivatives, test results, and even the bio-trash you throw away. It also becomes part of your inventory control system. When you sell your products, you close out each item in inventory and enter the registration of the distributor or retailer who bought your products. The sale transaction is recorded and transfers the tracking legal requirement to the buyer.
Pay close attention to the above, because even a small error along the way can result in fines as high as $100,000 per instance. Neglect and inconsistency will result in loss of your license, large fines, and possibly incarceration.
Of course, federal legalization and the removal of cannabis from the schedule of dangerous drugs will change everything. That will bring a whole new nightmare of changes to existing regulations. Be aware that many cannabis startups fail due to complex license application processes and regulations. Therefore, ask yourself if you can handle the attention to detail that is required at all levels of the industry that touches the plant. Accessory products like pipes, clothing, containers, and graphic products are excluded.
Technology
Cannabis cultivation is no longer simply the process of sticking a seedling in the ground and watering it for a few months during spring and summer. Marijuana is now being grown in warehouses and greenhouses that are wired for AI, analytic monitoring systems, climate control, nutrient and water control, and solar arrays.
New and improved lighting, solar energy systems, HVAC, pollination machines, testing equipment, packaging machines, and robotics for many functions are replacing previous more primitive growing methods. The downside of all this technological improvement is the time and attention you must spend on monitoring what is available, researching what systems you want to use, and the expenses.
The same thing has been happening in the manufacturing process, testing, tracking, and point-of-sale systems for retail. However, technology also makes it easier to grow reliable crops, comply with environmental impact regulations, and sell your product.
Differentiation
Once you launch your company, you will find yourself in a mind-boggling universe of cannabis strains, derivative products, retail options, brands, and marketing. This means you will have to differentiate your company and its products to achieve a profitable market share. You can do the market research yourself, or you can hire experts to guide you with contacts and advice. The cannabis business is overflowing with expert advice-givers. Differentiation brings in new customers and can help you retain them. Offer unusual cannabis strains, invent new smoking technology, new concentrate and oil products, new styles of consumption.
Differentiation will be important when federal legalization takes place because new markets will open thanks to interstate commerce.
Taxation
You must also consider the fact that industry analysts are predicting that you might be paying as much as 85% in various federal, state, and local taxes once federal legalization takes place. Of course, you probably will be able to write off business expenses, which will be a big help.
Early entrance into the industry and the impressive profit potential can make all the difficulties worthwhile. The cannabis business is now booming with huge growth potential, so your success is entirely dependent on how you manage your enterprise.