By Christian Phelps, Operations Director – Next Big Crop
If you haven’t taken steps to start a cannabis cultivation business yet, what are you waiting for? With cannabis sales soaring amid the pandemic, recent successful ballot initiatives in states across the U.S., and a new Congress and White House administration that’s hinted at federal legalization, the time is right.
Here’s the first thing to know: States issue cultivation licenses at different rates and with different sets of rules—some states control the number of plants, others will impose cultivation space or canopy limits, and some don’t get that granular. And as for the number of licenses issued each year? Washington issued just 66 new licenses in 2020. Compare that with Oklahoma, which led the nation with 2,392 new licenses issued in the same year.
The point is, it’s a competitive landscape out there, and regulations vary widely. It’s not as simple as applying for a license and—poof—you’re launching a grow. The last thing you want is to sink a ton of capital into an operation only to realize you won’t be able to scale up due to plant-count limits, or the market is saturated and your margins are much tighter than you thought they’d be.
There’s a lot of planning that needs to happen and a number of conversations you will need to have with key individuals before you water a single plant. Whether you’re targeting an emerging market or an established one, here are six things to know about cultivation businesses, and where you should start:
1) You Need Support. Lots of It.
Are there industries you can break into all by yourself? Sure, absolutely. Cannabis isn’t one of them. Especially in cultivation, there are just so many areas of expertise that are essential to success.
So, start with yourself. What are your strengths? Cannabis connoisseur and business strategy pro? Excellent—get a list going of areas you can’t personally cover (might I suggest finding a good, trustworthy cultivation partner as soon as possible), and figure out who else you’ll need to add to your team, and when. For example, cultivation and finance pros should be by your side in the early days. A social media or branding/marketing whiz can be brought on later.
A diverse team with complementary skills will be the single-most beneficial asset your cultivation company can have. Choose them well and wisely, and you’ll reap the benefits.
2) Fundamentally Understand the Market You’re Entering
Gut instinct is one thing, hard data is quite another. Before you start a cannabis cultivation business, you need to get in deep with consumer and market research to understand consumer behavior, growth potential and market growth drivers.
Read and subscribe to industry publications like Marijuana Business Daily, and do frequent deep dives on data with resources from industry-focused outfits like BDSA. Read up on industry trends, interview consumers about their product preferences, visit dispensaries in the area, conduct a pre-launch survey—get both qualitative and quantitative data.
Gathering this data will help you identify areas and specific market segments where your business could be uniquely positioned, as well as help you flesh out your specific business plan. Which brings us to item #3.
3) The Plan, the Plan, the Plan
You can raise all the money in the world, but without a good research- and fact-based plan, you’re dead in the water. As the cannabis industry continues to mature, you must prepare for an ultra-competitive landscape.
This means being a cultivator is only part of the job—you need to plan for what you’re selling, and how, and to whom: Will you produce small batches of craft, top-shelf flower? White-label your product? Grow in bulk for extraction purposes?
And depending on your product, will you brand your business? To what extent? What will your marketing efforts look like? And what about your marketing mix—product, price, place, promotion?
And then we get to moving it out of your facility and into your customers’ hands. There are so many options (depending on local regs): wholesale vs. retail, through distributors or brokers, direct-to-consumer for CBD products … the list goes on and on.
Once you’ve determined your business’s key differentiators, attributes and go-to-market strategy, it’s essential to plan for how your business is going to be profitable. Financial pro formas, market and business forecasting, and market opportunity analyses will be key in planning for your future.
Financial plans like this will also help you to understand where the cutoff for business solvency is. At what point would you become unprofitable, should the price of flower bottom out?
4) Get Comfortable With the Community
In a growing industry, being part of the community of your peers is so important. It’s critical from an educational perspective (why not learn from those who have found success in the market you’re entering?) and also helps you prepare for what lies ahead once you open your doors.
Start by attending local meetups and virtual forums for business owners, public hearings about cannabis industry regulations, and industry nights. Collect business cards or exchange contact info, and make a genuine effort to support others’ businesses. Cannabis is full of entrepreneurs eager to see this industry continue to grow and mature—and being part of that process will only enrich your efforts.
5) Get to Know Your Regulators
Along those lines, it’s never too early to get to know your local regulators. It depends where you are in the process of launching your cultivation business, of course, but it matters regardless of whether you’re procuring property, getting licensed for your grow or purchasing an existing cultivation business.
Wherever you are in the chain, find out what your regulatory body will be and research key points of contact there. You may not know which specific regulators you’ll be working with until you actually undergo the licensing process, but doing your homework can help you prepare.
Your relationship with your regulators can make things easier or much more difficult—and as cannabis continues to face more and more regulations (especially if federal legalization becomes a reality), having a positive, constructive relationship with regulators will serve you and your business well.
6) Know When It’s Time to Get Started
You’ve done the homework, you’ve made lots of preparations. Now comes the most challenging part: acting on your business plan. Some people get to this point, panic and let the opportunity slip by. Suddenly, they may find their plan is outdated or something fundamental in the market or business landscape has shifted.
Put simply, don’t let perfection be the enemy of the good. If you wait for every single piece of your business to be squared away and just right before launch—well, you’re never going to launch your business.
That’s part of why it’s so important to pull people in who have been there before and have been through it all—from site selection, to licensing, to optimizing workflows from seedling stage to harvest. These experts will help give you confidence in your plans and in your business so you can thrive in an increasingly competitive landscape.
At Next Big Crop, we’re here to help you launch a cultivation business that’s built for long-term success—plain and simple. To learn more or chat with us about recent projects, please don’t hesitate to reach out.