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December 9, 2022
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The cannabis industry in the United States may be facing challenges, but it’s still growing. Sales are expected to surpass $35 billion in 2022 and $52 billion just four years later in 2026 according to the 2022 MJBiz Factbook. That means there are many opportunities to join the industry either as a plant-touching or ancillary business, and savvy entrepreneurs continue to seek ways to cash in on that growth.
With that said, it’s important to understand that for many cannabis entrepreneurs, the barriers to entry into the industry combined with daily operational barriers make it difficult to generate a profit – let alone to stay in business.
Legal cannabis in the U.S. is a highly-regulated industry and those regulations vary from town to town and day to day. Things are constantly changing, but you can be successful if you have the right personality, passion, and perseverance.
Before you jump into the cannabis industry, consider the 10 factors discussed below that could determine an entrepreneur’s success or failure.
It doesn’t matter if you’re starting a business in the marijuana industry or any other industry, you need to do it right from the very beginning. That means you need to invest in legal, insurance, finance, and tax help from experienced professionals who understand the industry and your business.
This is an industry where finding financing can be difficult, navigating tax rules can be challenging, and securing insurance can be even harder. You’ll need help to ensure your business is set up for success, because the costs of getting it wrong could end up putting you out of business sooner rather than later.
It’s common sense that an entrepreneur should believe in their product in order to be successful, but in the cannabis industry, you need to believe not just in the specific product or service you’re selling but in marijuana, itself. You shouldn’t just be in this industry for the money, because it’s unlikely to come quickly.
Marijuana is still illegal at the federal level, and while 68% of U.S. adults support legal cannabis, you’ll probably face scrutiny and negativity from some members of the community where you do business. Therefore, you’ll need to educate, defend, and advocate marijuana as well as your products and services.
Don’t underestimate the critical importance of building relationships within your community, conducting outreach, and educating people. Are you willing to wear all of these hats? If not, then this might not be the industry for you.
One thing you can count on in the cannabis industry is that it will change often. You’ll face a lot of uncertainty as a cannabis entrepreneur as the industry continues to evolve. State laws, county laws, town laws, and even neighborhood rules change all the time, and you’ll need to keep up.
Things change even in states where medical and/or adult-use cannabis have been legal for years. You’ll need to stay in front of the macro- and micro-environments where you do business, as well as competitive threats, and you’ll need to be flexible enough to adapt quickly.
Compliance is mandatory, so it’s essential that you either hire someone to oversee compliance matters for your business or you do it yourself – and do it extremely well.
As a cannabis entrepreneur, you’ll face roadblocks when you start your business and as you operate it on a daily basis. For example, you’ll probably have trouble getting financing to start or scale your business. You’ll face tax complications that businesses in other industries don’t have to worry about, and you may even have trouble getting a bank account or payment processor for your business.
Are you resilient enough to keep going despite the many roadblocks you’ll face along the way? Will you still be motivated after the fifth roadblock? What about after the twentieth roadblock? The fiftieth? Only you can answer that question, so think about it before you dive into the industry thinking it’s an easy way to make a lot of money.
As mentioned already, the laws of the cannabis industry change all the time. Every state and municipality has its own set of laws, and you’ll need to learn all of them for the areas where you do business. This means you might have to invest more money than you’d expect on things like logistics, marketing, sales, distribution, and more, because what you’re allowed to do in one town might not be allowed in the next.
In addition to learning and following the often-changing laws, you’ll also need to understand how those laws can affect your business’ profitability. Many areas where businesses in other industries can benefit from economies of scale and streamlined processes will not be available to you.
The marijuana industry offers a lot of opportunities, and since it’s growing and changing often, new opportunities will pop up all the time. The key to be successful as an entrepreneur is to be able to recognize when these opportunities are strategic low-hanging fruit and when they’re distractions that lead to mission creep.
In other words, you need to define your business plan, create a strategy to reach your goals, and stick to it. I always say a focused brand is a strong brand, and that’s true in the cannabis industry just as much as it is in any other industry. Don’t lose your focus!
Some entrepreneurs are attracted to the marijuana industry because they see easy money. They might have no retail, sales, or customer service experience, but they decide to open a marijuana dispensary because it sounds like a great money-maker. Unfortunately, the reality is quite different.
To be successful as a cannabis entrepreneur, choose a business that leverages your existing skills, knowledge, and experience. Yes, you can always learn more or hire employees to fill skill and knowledge gaps, but if you start out in your comfort zone by picking a type of business that matches your talents and abilities, you’ll have a much better chance for success.
As an entrepreneur, you’ll need a strong team to be successful. You simply cannot do everything yourself and expect to grow. Therefore, you need to brush up on your leadership skills and hiring skills. Take an inventory of your skills and knowledge. Where do you need help? What areas of business are outside of your expertise? With this information in hand, you can build a powerful team to ensure everything is covered.
A good leader recognizes that they don’t know everything. A good leader also understands that investing the time and money into building a high-performance team can make the difference between success and failure. Therefore, be willing to pay enough to attract the right talent, and once you find that talent, let them do what they do best.
Keep in mind, the number of people working in the cannabis industry grows every day. According to the 2022 Leafly Jobs Report, the industry created an average of 280 new jobs per day in 2021, and as of January 2022, the industry supported nearly half a million jobs (428,059 to be exact). That means the competition to attract the best talent will increase. Therefore, you need to be prepared to adapt your salaries, benefits, and other perks to ensure your company offers the right compensation packages.
Competitive research is critical to your success as an entrepreneur. With so many opportunities in the cannabis industry, you need to do your due diligence and identify where there is room for a new business to do things better and steal market share.
Once you identify the type of business you’re going to start, maintain competitive analysis reports on each of your direct and indirect competitors. Monitor their blogs, content, and social media profiles. Track the events they attend, advertising they invest in, and keywords they use to drive traffic to their websites.
Invest in tools like SEMrush and Spyfu to gain powerful insights that you can leverage to improve your own chances for success. The Cannabiz Media License Database is another important tool that many entrepreneurs and businesses of all sizes use for competitive research, customer relationship management, email marketing, and sales outreach.
The early days of the cannabis industry - when it was okay to run a business like a stoner - are over. Today, you need to run your business like a savvy, success-oriented entrepreneur. That means you should dress the part and act the part.
As a cannabis entrepreneur, you’ll need to invest time and money into building your brand (including both your business and personal brands), being a leader for your employees, and establishing credibility and trust among a wide variety of stakeholders and audiences, including the community, your industry peers, investors, business partners, and even the media. If your internal and external audiences don’t perceive you as capable of doing your job, your business is likely to fail.
To that end, be personable, be smart, brush up on your networking skills, be ethical, and start building professional relationships that will help your business grow.
Bottom-line, proceed with caution when you consider entering the cannabis industry. It’s not for everyone, but if you have the right mindset, spirit, and commitment, you can be successful.
With the many laws that make it difficult to operate in the industry, taxes that make it hard to generate a profit, and misunderstandings about marijuana that make it challenging to promote cannabis products and services, many entrepreneurs feel like they’re being set up for failure in this industry.
However, for the entrepreneurs who understand the obstacles and risks and are willing to stick with it for the long haul, the results can be worth the time and effort. Are you one of those entrepreneurs?
Originally published 7/3/18. Updated 12/9/22.
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