The cannabis industry is expected to be valued at over $20 billion by 2020. All that green may signal that it is time to jump in, but it is still a high-stakes industry at the mercy of a federal government that considers it illegal. So how do you navigate the highly regulated field of cannabis sales? As it turns out, very carefully.
Consider Your Future
It may be difficult to see the obstacles and risks when your eyes are only seeing green — and in more ways than one. Before deciding to open your own marijuana dispensary, it is crucial to sit down and consider the impact it could have on your life. In these times of rolling legalization and increasing social acceptance, it is easy to think we have passed the days of pot prohibition. But depending on how the political winds blow, the feds could start cracking down on the cannabis industry at any time.
The cannabis industry has an unprecedented licensure and legalization process, with heaps of red tape and ever-changing laws and regulations. Not only do you need a firm grasp on compliance, but you and all of your investors and employees will need to submit to a background check. Felons and anyone with a previous drug-related conviction are banned from owning a cannabis retail business. It’s also worth considering the impact on your future employability if you have a history in the cannabis industry.
If you’re not scared off, it is essential to know the laws and regulations inside and out — current but also proposed law changes. Constant vigilance in this area is absolutely necessary to stay ahead of any expensive fines that could be levelled against you. The National Organization for the Reform of Marijuana Laws, or NORML, has a database of detailed cannabis laws and penalties in every state.
Piles of Green
Still on board? You’ll need cash and lots of it. Don’t fall into the trap of thinking that you will be profitable from the start. Veteran dispensary owners encourage newbies to have at least a half a million dollars initially. Licensing fees vary from state to state, and then there is the upfront non-refundable application cost. There are also requisites for startup capital; for example, individuals in Arizona have to prove they have at least $150,000 on hand, while in Nevada you must have a quarter million in liquid assets. However, the actual capital needed is higher than the minimum threshold set by the state.
You should expect to put in a couple of years of hard work and time before your business is profitable. Get a lawyer and a CPA to be sure you stay ahead of compliance and avoid paying unnecessary fines and fees. Dispensaries are at a high risk of audit by the IRS, and you’ll be thankful to have the right partners from the start.
Hitting up family and angel investors for the necessary capital may be more successful than acquiring personal bank loans. Many banks and credit unions are reluctant or unwilling to work with cannabis entrepreneurs. Even if you find a bank that is willing to loan you the cash, you may find out soon after that the FDIC will not insure it, leaving you back at square one. While it may seem like a losing battle, always be honest about your business to remain compliant, and don’t take rejections personally.
Be sure to include in your budget the cost of rent and deposits, all licensing and application fees, employee salaries, initial inventory, insurance, marketing and office supplies. You’ll also want a point-of-sales system that allows you to track numbers and trends remotely. Check for a product that works with your municipality or state’s system that you are required to use to report on your business.
Plan the Work and Work the Plan
A business plan is an absolute must, especially for getting investors or banks on board. It is better to come to the market correctly than first, so be sure you run your plan by multiple experts and don’t be afraid to tweak it along the way. There is a lot of trial and error in the cannabis industry as regulations change.
You may find that the location you scouted is not friendly to cannabis businesses and have to start over from scratch. Do your research ahead of time: Look at neighborhood demographics and check voting history on cannabis-related measures to gauge their attitude toward marijuana. Then find a cannabis-friendly landlord, but don’t think you’re in the clear yet. Attitudes can change and landlords may end your lease if they get a lot of blowback.
Your style and methods of marketing and advertising can make or break the impression neighbors have of your business. For starters, don’t call it “weed” or “pot.” These terms carry much more stigma than “cannabis,” and words like “leaf” or “medicine” will help paint your business in a much better light. Quality marketing and respect towards the community will go a long way in easing fears that you are opening a drug den.
List your business on 420-friendly sites like WeedMaps and Leafly, and don’t discount word of mouth advertising. Carrying top-of-the-line products in a clean and friendly environment will go a long way toward growing your customer base naturally.
Capital is secured, space is rented, inventory sourced. Go time? Not yet. You will need reliable employees who are knowledgeable about cannabis and skilled in customer service. The last thing you want is high employee turnover, so ensure you hire quality candidates from the start. Training is crucial and ongoing to be sure your staff is on top of the newest research, products and knowledge.
Once you have everything set, hire a third party to conduct a full audit. This is a good quarterly practice as well to stay on top of compliance and avoid any surprises. If everything is a go, host a soft launch with family and friends who will give you honest feedback on any tweaks that need to be made before the grand opening.
Now the fun begins and you will hopefully find owning your own business to be exciting and enjoyable, especially for those first months or years where profits are slim. The cannabis industry is unique, risky and potentially highly profitable. If you have an entrepreneurial spirit, massive amounts of capital and aren’t scared off by the risks, you could have great success in this unexpectedly booming business.
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