How To Start A Cannabusiness

How to Start a Cannabis Business

By Leafy Mate February 15, 2022

An expertly crafted, comprehensive guide for starting a marijuana business.

The journey to starting a successful cannabis business will be challenging at times. There’s guaranteed to be no shortage of ever-changing regulations and laws, high tax rates, and many other complications along the way. We’ve put together a helpful guide that includes advice and knowledge from cannabis industry leaders and other “canna-business” experts. Here, we will provide you with a solid plan and a clear path to starting your cannabis company.

What are the Steps for Starting a Cannabis Business in a Legalized Market?

When delving into the world of growing cannabis tips in a legalized market, it’s essential to first understand the legal requirements. Research the specific regulations in your area, obtain the necessary permits, and develop a solid business plan. Be sure to consider factors such as location, financing, and compliance with local laws.

Industry Overview

Along with most other industries, the global cannabis industry took a hit due to COVID-19. Specifically, brick-and-mortar dispensaries suffered while cannabis delivery companies began to see a boom in business. Most companies had to shift to including social media and e-commerce marketing in their business plan. That being said, the cannabis market is growing and is projected to continue this upward trend in the coming years.

Cannabis industry market drivers include the success of its medicinal properties, especially for the older communities and those with chronic conditions. As it becomes increasingly popular, more U.S. states are expected to follow legalization. The FDA has approved several cannabinoid drugs, and there is plenty of room for growth and new product creation in both the medical and recreational markets.

Recent Industry Growth

In recent years, cannabis has grown with unprecedented speed as a new industry in the world market. 18 U.S. states and the District of Columbia have fully legalized recreational cannabis consumption providing many new, excited consumers. According to market research, the global legal marijuana market size was valued at USD 9.1 billion in 2020 and is expected to expand at a compound annual growth rate (CAGR) of 26.7% from 2021 to 2028. Many other countries have legalized cannabis during the coronavirus pandemic, causing a worldwide spike in the emerging market. In short, there’s already a solid consumer base and plenty of money to be made by tapping into the growing marijuana industry.

The Removal of the Stigma

After studying the complex history of global cannabis use, John Charles Chasteen made an educated conclusion regarding the stigma around using marijuana. He wrote that historically it has been “used by the poor, by the marginal, by the chronically ill, by the artistically and philosophically and spiritually inclined, by seekers after the meaning of life, and by social and religious nonconformists of various stripes.” (Chasteen 2016:137).

There is a noticeable global stigma around weed because outsiders have traditionally used it. While we are closer to normalization than ever, we aren’t quite there yet. Studies show that the experiences of people of color, women, and the poorer communities still deliver the results of being stereotyped due to using cannabis. We may be on the brink of post-prohibition as a global collective, but more profound acceptance and understanding will be necessary for ultimate societal normalization.

Decriminalization and Legalization

While the decriminalization of marijuana may be a great step towards reform, there is still a significant overflow of adverse prohibition effects on society. It is in the best interest of future customers if we develop and implement specific regulations on the cannabis industry. Black market marijuana businesses provide a level of risk that is yet to be fully addressed by the U.S. and other countries’ governments. Markets selling illicit products have little to no regulation, meaning they could potentially have inaccurate potency information or be harmful to users altogether. Due to being federally illegal, it is often an industry corrupted by crime, violence, and extortion.

Twenty-nine states in the U.S. plus Washington D.C. have initiated some form of decriminalization or legalization of marijuana. But, this is not enough. For American society to benefit fully from reform, it needs to be legalized federally, proving quite an obstacle against passionate opposition groups. Until that day, the stigma will remain to some degree for the cannabis industry.

Market Size and Future Projections

Here are a few cannabis market insights:

Cannabusiness is a rapidly growing industry.
Market size is expected to increase to a value of USD 91.5 billion by 2028.
This substantial increase in cannabis businesses is primarily due to increased global legalization in recent years.
Medical users were at the top of the market in 2020 and are anticipated to remain on-trend in the future.
The elderly population is at the top of the consumer base for medical marijuana.
Cannabis is increasingly used to treat medical conditions such as chronic pain, anxiety, psychological disorders, cancer-related symptoms, insomnia, and more.
North America will lead the worldwide cannabis market in 2022 as it gains popularity in the U.S. and Canada.

How to Start a Cannabusiness

Here, we focus on the precise steps to take when starting a cannabis business.

Pick Your Focus

You’ll want to take the time upfront to do extensive cannabis market research. Since your cannabis business will inevitably have its tightest profit margins as a new startup, you’ll want to be sure to choose a niche that you’re passionate and knowledgeable about. Next, check the data and get to know your target market deeply. Once you’ve solidified your cannabis business name, selecting a specific niche is important because the broader a business model you have, the more saturated the market will be. It’s a winning idea to be creative when starting a cannabis business. Think outside the box and find a unique marketing spin, material, flavor, or design that your competitors haven’t thought of yet. The exciting thing about the cannabis and vaping industry is that there aren’t many rules to follow; use that to your advantage. Find your angle, learn how to sell it, and you’ll develop long-term scalable success.

Cannabis Real Estate – Invest in Land

As an entrepreneur, cannabis real estate investment is essential. You can either lease or buy legally viable land, those are the two options, and they are both reasonably costly. Your best bet as a real estate investor is to purchase the acres and then hire an operator for supply chain management and daily implementation. Using this business model, you don’t have to concern yourself with dispensary licenses, and you can still bring in profits from multiple channels. You will turn a profit by having your property green-zoned, and you can usually negotiate a percentage of the operating gains as well.

CBD/Hemp Cultivation & Farming – Investing in Production

Depending on the supply chain, cannabis farmers typically harvest hemp for medicinal purposes, industry sales, or recreational use.

Since the U.S. Farm Bill was passed in 2018, American farmers have grown hemp in designated legal cannabis space. Many farms have decided to profit from CBD’s demand by using parts of their land for hemp cultivation purposes. A recent study conducted by Vote Hemp found the number of acres of hemp planted jumped from 78,000 to 200,000 between 2018 and 2019. The acres licensed rose from approximately 110,000 to 510,000 in that same year. Cannabis cultivation is continuing on an upward trend.

Before investing in a grower, get to know the company’s financial and legal history. Be sure to find out the distributors they use and their primary financial investors. Learn if they are well-established, find out about their reputation and past professional relationships. With this information, you’ll be able to gather a good idea of the risk associated with your potential investment.

Tourism – Investing in Travel

Here are five of our favorite cannabis travel industry leaders. Visiting their websites will give you an idea of what’s out there and what will be needed to start a cannabis business in the travel niche.

Popular Types of Cannabis Processing Business Models

As cannabis becomes more marketable due to the legalization of medical and recreational use expanding globally, we begin to notice the vast amount of cannabis-related niches that have emerged. While investors and start-ups often think a physical location dispensary is the only way to go for cannabis businesses, they don’t quite grasp that there are many other opportunities with fewer startup costs and licensing fees in the marijuana industry. It’s a solid idea to weigh your options, build something creative without needing excessive start up capital. Then, you can pinpoint what adult use businesses require and where yours fits into the market. There’s plenty of room for everyone in the cannabis industry, from production, extraction, and retail sales, to build up their bank account and remain following the state law.

Tolling

For a flat fee, the grower gives their cannabis flower to an extraction company. From there, the extractors complete the process of crafting it into oil and then return it to the grower for bottling and selling.

Spot Market Sales

This type of cannabis business is ideal for extraction companies looking to sell their own product. They purchase the flower, craft it into oil and then sell it as an unlabeled wholesale product.

White Labeling

Here, extraction companies still buy the plants and extract the oils, but they go a step further by packaging the oil as a consumer product ready to be labeled and sold in the market.

Retail

This method works best for cannabis extraction businesses with prior branding, that are interested in buying the flower wholesale and creating a retail product that can be sold to the government or local dispensaries.

In-demand Ancillary Industries

Here, we found the top eight ancillary jobs in demand for the cannabis industry.

Accounting
Compliance
Marketing and Social Media
Security
Computer Science and Technology
Packaging
Real Estate and Construction
Finance and Banking

Brainstorming Unique Idea

It’s imperative to work smart, not hard, when starting any cannabis business. To develop a truly brilliant business plan, take the knowledge and mistakes of cannabusiness owners before you and combine it with your talent and drive. This will ensure that you don’t make mistakes that others have made, leaving you more room to build market share and authentic relationships with potential investors and customers. It’s essential to keep in mind the importance of networking to grow operations, especially at the beginning.

Remember The Four Ps

In the marketing world, product, price, place, and promotion are the pillars of a successful marketing strategy. How do these four ideas transfer to the cannabis industry?

Product- Invest in creating a brand that you can be proud of, and know all of the ins and outs of your product before selling it on the market. Customer surveys and targeted segmentation marketing are a couple of ways to receive valued customer feedback.
Price- Find out how your competitors are pricing their products and try to beat it, within reason. If you can’t match the price, make sure the quality is there and that customers feel like this cannabis product is worth the extra dollars. Creating a bundle and promotions for returning customers is an excellent start.
Place- Research your target audience, find out where they shop, what websites they visit, and then decide where to place your product. This will ensure that your company’s reach includes and specifically targets your ideal consumer base.
Promotion- Build a solid relationship with your customers, share the company’s origin story, utilize free social media collaborations and marketing tactics, send email blasts and holiday promotional codes.

Write a Business Plan

Now that you’ve decided on a marketing strategy, writing a comprehensive business plan is the next step. You’ll want your business plan to be professional, easy-to-read, and inspiring to investors and consumers. Here’s what should be covered.

Overall costs and an estimated profit timeline.
Advertising your brand.
The company’s edge over top competitors.
Location (physical, virtual, hybrid)
Manufacturing strategy and main suppliers.
Hire legal professionals to keep your paperwork in order and up-to-date.

Planning

There are two distinct types of businesses in the cannabis industry: those that deal directly with the plant and those that don’t. If you want to avoid hefty fines, it’s essential to know which category you fall in and the legal framework involved with that type of cannabis business.

Plant-touching cannabis businesses handle marijuana directly (the organic flower, products infused by cannabis plants, etc.) and are required by state laws to hold a license.
Non-plant touching businesses, or ancillary businesses, provide services to support businesses. They may provide legal, marketing, or accounting services, but they do not handle cannabis products directly. Some business licensing or professional training may still be required; each state can have different laws in opposition to the federal government.

Make Sure You Understand Cannabis Regulations

It’s not unusual for a start-up to begin operations prior to seeking legal counsel. In the cannabis industry, however, establishing a lawyer is crucial in the early stages of your business. This is heavily due to the fact that marijuana is still illegal under the Federal Controlled Substances Act (CSA). Additionally, each state has its own cannabis laws and regulatory agencies in place. There are states that have medically or fully legalized it, while others have only legalized CBD or none of the above.

Navigating the ever-changing state requirements for a cannabis license, while also remaining within the federal law can seem like an impossible feat. A respected, well-informed attorney will smooth out the process and ensure your cannabis business is safeguarded from legal risk.

Secure Funding, Business Loans, or Investors

Secure funding is a loan in which cannabis companies offer up an asset for collateral against the loan. Around 700 of the 12,000 U.S. banks provide services to cannabis businesses. You’ll have a greater chance of approval with these institutions, so we recommend trying them first.

Get Cannabis Business Insurance

Having insurance coverage to protect your investments, assets, and product is a necessity. Many cannabis businesses choose to rely on insurance from one of the four companies below.

Cannabis-Specific Payment Processors

A vast amount of businesses in the marijuana industry have difficulty finding cannabis-friendly banks and payment processors. Unfortunately, federal banks are unable to do business with start-ups in the cannabis industry due to its federal legality status. If financial institutions choose to finance a canna-business, they risk a money laundering charge or worse. In states that have not decriminalized cannabis, cannabis profits are considered illegal drug money.

Due to federal laws and state regulations, it is smart to save up before starting your business in case financing becomes a challenge. Luckily, more weed-friendly banks and payment processing companies are popping up across the country as the industry grows.

Hiring

If you’re ready to hire and unsure where to begin, utilize the internet to make your search easier. There are recruiting platforms and career and training agencies explicitly designed for the cannabis business. If you have the budget, let a trusted, professional company handle the core aspects of hiring. At the same time, you focus on other cannabis business factors, such as acquiring licenses, navigating federal law, and other things sure to come up in the marijuana business daily.

If your cannabis business doesn’t have the budget to outsource an agency, that’s okay too. During the hiring process, be sure to take your time—staff professionals knowledgeable about the marijuana business and who bring significant value and skill to your cannabis brand. Carefully curated questions and purposeful skills tests will give your business entity vital insights into what it would be like to work alongside your potential employees.

Industry-Specific Job Boards

Here are five websites that come highly recommended for finding jobs within legal professional marijuana businesses.

Cannabis Business Training Programs

If you’re interested in cannabis courses or hands-on training, take a look at these five cannabis industry universities.

Marketing

To successfully market your marijuana business, you’ll want to know your target audience and know them well. Who are they? What do they do for a living? What’s their age? Where do they live? What are their hobbies? These are all essential questions, and you’ll need the answers.

If you’re familiar with Google Analytics, that’s an excellent place to begin. It will show you marketing and consumer trends, how your content fares again the competition and can help you design subgroups with targeted consumer segmentation. If this seems out of your area of expertise, hire a marketing agency that specializes in working with cannabis businesses. This will help you stay in the loop with market trends, cannabis business license requirements, and any changes impacting federal law for licensed cannabis companies.

If you have built a solid website, it’s a bright idea to include a cannabis-related blog. Be sure to take advantage of the opportunity to educate your audience about cannabis through blogs, emails, newsletters, and especially social media.

Despite how popular the marijuana, CBD, and other hemp industries have become, you won’t see these brands in many traditional media advertisements. Social media, however, is a highly relevant and practical marketing platform to consider when trying to promote cannabis businesses.

It’s essential to remain up-to-date on the latest cannabis market trends and news. Utilizing hashtags, taking advantage of teaching opportunities, and creating unique content with a call to action are a few ways to ensure that your cannabis delivery or ancillary services reach the intended target audience.

Another way to advertise on social media is through influencers. Building relationships with brand influencers from all types of niches is the key to success. Ensure that your team is committed to working with people who have built an online presence in multiple industries outside of simply cannabis products, such as lifestyle, health and beauty, food, and travel. This will help you to mold society’s perception of your brand within many markets at once.

Branding and PR

Once you’ve established your brand and gotten your cannabis license, it’s time to carefully place your cannabis products or ancillary services out into the world.

Decide on a realistic PR budget and stick to it.
Build a connection with your audience with a relatable, meaningful origin story. They need to understand the why before they can hear the how.
Continue to establish trust through education. Again, when starting a cannabis business, utilizing your website for blog content is a free way to cherry-pick brand content.
Attend local events, reach out to local businesses for affiliate marketing opportunities. Saturate the market with meaningful content from your brand on as many relevant platforms as possible.

The Bottom Line

Starting a successful cannabis business is no small endeavor. You’ll need a unique idea, extensive knowledge of regulations and laws, and startup capital to begin earning profits. For the marijuana industry, in particular, your team will need to stay on top of the ever-changing legalities of creating a federally illegal product within the market. As the legal marijuana industry continues to grow, even with the potential risk associated, a well-planned cannabis operation may be your ticket to a highly-profitable business.

Leafy Mate