Specialists in the areas of cannabis cultivation, finance, infused products and more shared their professional trials and triumphs with more than 3,000 attendees at the inaugural MJBizConNEXT conference held this May in New Orleans.
Entrepreneurs looking to enter the industry flocked to new “walkthrough” sessions, where veterans in the growing industry reflected on their first 100 days of operation, highlighting steps taken to smooth the transition and pitfalls that were waiting.
Marijuana Business Daily, which produced the conference, hand-selected investors, lead cultivators and extractors for preconference programming. A roundtable setting gave marijuana business professionals the opportunity to share their own challenges and hear how peers from around the continent tackled similar obstacles.
Editorial staffers from Marijuana Business Magazine were on hand for each session to gather tips and actionable advice from top members of the industry. What follows are the top 10 takeaways to implement in your business.
1. Don’t Reinvent the Wheel
Paying experts to get your business up and running can be money well spent.
Just ask Elyse Gordon.
The cannabis industry was in its infancy in 2009, when Gordon co-founded Better Baked, a Denver wholesale producer of infused edibles such as cookies, candy and hot sauce. As an early industry entrant, Gordon learned the expensive way that it doesn’t always pay to try to do everything yourself.
“You have the ability not to reinvent the wheel and get assistance from people who have been in the industry for a while,” Gordon advised newcomers.
Consider it a worthwhile investment. “Would it pay for you to give someone $10,000 to save you $100,000?” Gordon asked.
In the edibles-manufacturing business, for instance, assistance may be helpful in dealing with:
- Landlords and contractors who may be out to gouge you.
- Setting up a kitchen so it will pass health inspections.
- Working to ensure the edibles are of consistent quality rather than looking like “they came from the worst camping trip you’ve ever seen.”
Then, of course, there’s finance and marketing and all the things that go into running a business.
Gordon’s advice: Stick with what you love and outsource everything else.
“Don’t do it the right way, and the only dough you’re going to be rolling in is cookie dough,” she quipped.
2. Look Beyond Flower to Other Products
Will the future of the marijuana industry be flowerless? Not quite, but close.
In the years to come, flower will play a much smaller role in marijuana sales, as oil and infused products evolve to give consumers more choices.
“Flower will always have a place, but it will diminish (as consumers) turn to what they see as ‘healthier alternatives,’” said Nicholas Vita, CEO of Columbia Care, a medical cannabis company operating in 10 states, plus Washington DC and Puerto Rico.
Vita pointed to statistics showing that four years ago, flower accounted for 69% of MJ sales but now is responsible for only 48% of sales.
Cannabis industry executives believe consumers are moving away from flower in favor of products that claim to offer:
- Healthier delivery.
- Ease of use.
- Discretion.
- Ease of transport.
“There will always be nostalgia (for flower), but … products are evolving,” said Michael Gorenstein, CEO of the Cronos Group in Ontario, Canada.
What’s taking flower’s place?
Oil, according to Nancy Whiteman, CEO of Wana Brands, a multistate edibles company based in Boulder, Colorado. “We’re at the beginning of product innovation from oil,” Whiteman said, “but we’re lagging in research and targeting.”
Driving the interest in oil is that it delivers a consistent experience. “Consistency is so important,” Whiteman said.
3. Take Steps to Prepare for Big Booze, Big Tobacco and Big Pharma
Consolidation is coming to the marijuana industry, and much of it will be led by the alcohol, tobacco and pharmaceutical industries.
“They have many of the core competencies already, and they have scale,” said JJ O’Brien, vice president and general manager at Pax Era, a division of Pax Labs, a vaporizer company.
But they also have different competencies, he said. Pharma, for example, brings the skills needed for production, while alcohol is good at building brands.
For existing marijuana companies, surviving consolidation will require more than just having a license, said Gorenstein of the Cronos Group.
“The value of a license erodes very quickly – but your business can appreciate very quickly,” Gorenstein said. “A lot of the existing operators don’t evolve. There’s not a lot of value for someone to consolidate them.”
Another worthwhile note: “Don’t build off the business of today. Uncover what will create value tomorrow,” Gorenstein said.
And what are some keys to creating value?
- Automation to cut costs.
- Standardizing processes to improve efficiency and quality.
- Having a business that can be easily scaled.
Federal rescheduling could also usher in greater consolidation, Vita of Columbia Care noted, and would bring major changes.
“If it moves from Schedule 1 to Schedule 2, the vast majority (of businesses) … will be shut down. It’s not the panacea we all hope for. The FDA will be unforgiving,” Vita said.
4. Don’t Antagonize the Health Department
Like it or not, working with state and local regulatory agencies is a critical aspect of running a successful marijuana operation, according to Stephanie Hopper, vice president of government affairs and compliance at Canndescent, a California grower, and founder of KSF Consulting.
These agencies have the power to make life difficult. But if you follow a few key tips, you can make working with officials that much smoother:
- Dress Codes Matter: In an industry that often prides itself on being more relaxed about things like tattoos and wild hairstyles, what employees wear in your retail store can affect how regulators interact with them. “Daisy Dukes and tank tops are not a favorite of the health department,” Hopper said. Workers don’t need to wear suits, but a neat and clean appearance will go a long way in making a good first impression.
- Don’t Be Rude: “Employee behavior can affect inspection outcomes,” Hopper said. If the inspector comes in, and your employee bolts for the back room, that inspector may start looking more closely for a code violation. Train your employees how to interact with state and local officials – and keep training them, so they’re prepared for the eventual encounter.
- Know the Rules: Each state has its own set of health regulations, and it’s your responsibility to be familiar with them.
Engaging with the local officials is also a great way to help shape new rules on retail cannabis operations, Hopper said. “We have to constantly put this in their face, so they know we’re real businesses,” she said.
5. Be First to Market
In an emerging industry such as cannabis, it’s crucial to be first to market, according to Kim Rivers, CEO of Trulieve, Florida’s largest medical marijuana dispensary operator.
In the race to be first to market, Rivers said companies should develop a solid product line to allow themselves to grow. She also emphasized the importance of pricing products competitively to keep customers coming through the door.
Being first to market requires innovation – but controlled innovation. For example, two of Trulieve’s products, TruClear and TruFlower, offer the company’s own innovative take on common forms of cannabis, namely concentrates and flower for vaping. But she emphasized that Trulieve didn’t want to spend all its time developing new products.
“We didn’t want to give into ‘shiny ball syndrome,’” Rivers said, referring to chasing the next big idea. “We don’t want to crush innovation, but you have to manage it. You need a purposeful time and a purposeful space to discuss ideas to be vetted,” she added.
In a medical marijuana market, getting physicians to recommend cannabis treatments is crucial for a program to thrive. Trulieve has built an in-house community education team to support registered doctors, which ensures patients get the recommendations they need to purchase MMJ. Having more doctors authorized to recommend MMJ also can help a market grow by boosting patient counts.
“I keep hearing people say, ‘I’m going to wait for the market.’ Shame on you,” Rivers said. “We need to be out there. … Don’t be afraid to build a market.”
6. Preparation Is 80% of a Raise
The key to landing funds for a raise to expand your cannabis business comes down to one thing: preparation.
That’s according to investment guru Sara Batterby of The Batterby Group, a Portland, Oregon-based firm that works with cannabis businesses seeking capital. She noted that preparation is 80% of a raise.
“Create a schedule so you control the raise,” Batterby said. “It sends a clear signal to investors that you are professional, and you won’t sit around waiting for them.”
To Batterby, the basics of proper preparation to secure funding come down to:
- Timing: Set a date for securing the raise and stick to it.
- Format: If your investment folder is complete, you’ll be much more confident.
- Structure: Make sure your investment instruments and tools are in place.
“Create an environment that will be attractive to more sophisticated investors,” she said.
To pique an investor’s interest, specifically explain why your business is important and will be successful. The focus often is around your own clearly defined story, and the more authentic you appear, the better chance you’ll have of gaining an investor. “People are using the relationship to make the decision and the information to validate it,” Batterby said.
And don’t be afraid to ask for help. Effective fundraising is a team sport, Batterby said; make sure you have quality people in your investor pool. You need to guard your assets and have people on your side you can trust. This is all part of the preparation process.
“If you do a good job building relationships,” Batterby said, “that first round of investors will carry you.”
7. Run a Cannabis Retail Dispensary Like a Taco Bell
A new cannabis retailer can learn a lot from watching how a Taco Bell is run, said Christopher Martin, CEO of The Green Heart, an Oregon-based hemp and marijuana retailer that’s expanding operations into Nevada and California.
How is cannabis like tacos? Both are largely sold by low-wage staffers who must follow specific protocols to comply with health and safety regulations.
Martin called cannabis “the most regulated, tracked substance ever known to man” and added that retailers can’t rely on training to keep their staff compliant with the law.
“I use the term ‘Taco Bell checklist,’” he said. “When you open a store, there should be a checklist of everything you need to do. It doesn’t change each day.”
Some items that Martin puts on his list for employees closing a dispensary include:
- Enter sales into seed-to-sale tracking system.
- Bring cannabis products (including display items) into vault for overnight storage.
- Empty trash cans.
- Recharge iPads used during the day.
“This is imperative for you to make a successful operation,” Martin said. “There’s nothing worse than getting a call every day from someone asking, ‘Where do I find this?’ or ‘How do I do this?’ If you put the processes in place, people will follow the process.”
8. Think Beyond Plant Touching in California
For investors wanting to break into California’s multibillion-dollar cannabis market, there’s good news and bad news.
The bad news: The Golden State is already saturated with growers, retailers, edibles makers and other plant-touching businesses.
The good news: There’s a shortage of support-service companies, which means numerous business opportunities exist in the ancillary sector.
That’s according to California industry leaders Amanda Reiman, vice president of community relations at Flow Kana, and Dustin Moore, principal at Main Street Strategies. Reiman is in cultivation and distribution; Moore is involved with MJ policy work in Sacramento.
“Don’t come to California. We’re good, thank you,” Reiman said, referring to the tens of thousands of growers already in California that are still trying to get business permits.
Instead, she and Moore said, those looking to tap the California market are more likely to find success in non-plant-touching areas – whether that’s packaging, marketing, technology, compliance, security or something else.
Moore said the real business opportunities are in “picks and shovels” – a clear reference to how entrepreneurs made risk-free fortunes selling supplies to miners during the California Gold Rush.
In particular, she suggested plant-touching companies will need help with regulatory compliance.
Reiman also said she believes growers and manufacturers are facing the biggest regulatory hurdles, and that “ancillary support services will help them make that leap” into the fully legal market, particularly when it comes to regulatory compliance, covering legal liabilities and ensuring smooth operations on a day-to-day basis.
9. The Customer is King
For cannabis retailers in a hotly competitive market, consumer loyalty is key to survival.
Brett Roper, CEO of Medicine Man Technologies, a Denver consulting firm that licenses its cultivation and dispensary operating solutions, said that means thinking beyond what products to stock on store shelves. It means contemplating the overall customer experience and what’s going to appeal to as broad a base as possible.
For instance, Roper said, when customers are evaluating a shop, they’ll think about:
- Was it easy for me to find a parking spot?
- Was the location well lit?
- Was the property clean and well kept?
- Did I feel safe walking to the entrance?
- Was the location convenient?
Roper suggested paying close attention to basics, such as having a professionally dressed staff member at the door to immediately answer customers’ questions and concerns and explain how the retail operation works.
The same is true for customers leaving the store. Roper emphasized that one bad experience can be a serious detriment to a retailer – even if it comes at the tail end of a visit. “One poor experience can result in the loss of a customer,” he said.
Having an employee on hand to make certain all questions are answered – or even just to wish them a good day as they leave – can stick in customers’ minds as a reason to return or recommend the shop to others.
That’s because word of mouth, social media and online reviews are powerful drivers of foot traffic, especially in states that have a plethora of MJ storefronts to choose from.
“What people say about your brand will determine your success,” Roper said.
10. Don’t Overlook Rainwater for Crop Irrigation
As legalization of cannabis expands across North America and beyond, the resources needed for cultivation will grow in scarcity. Chief among these – particularly for outdoor farmers – is water.
Water use among growers is fraught with regulatory and environmental complications, especially when it comes to rivers and streams.
“Trying to stay away from surface water is definitely advisable,” warned Kristin Nevedal, chair of the International Cannabis Farmers Association. “Trying to get hold of that surface water for cannabis cultivation is problematic.”
To solve the problem, Nevedal advised growers to look to their rooftops and install rainwater catchment systems to bolster their existing irrigation plans.
An inch of rain on the roof of a 1,000-square-foot property yields 600 gallons of water, said Nevedal, who also is chief compliance officer for SunFed, a provider of extraction and manufacturing services and the parent company of California-based Humboldt’s Finest. An inch of rain on a 40,000-square-foot facility, meanwhile, would net 24,000 gallons of water. Ponds, tanks and cisterns represent other opportunities for rainwater collection.
Growers in agricultural areas that aren’t connected to municipal water sources should make sure their water source is permanent, Nevedal advised. “One of my favorite growing locations is an alluvial flood plain,” she said, adding that dry farming (or growing without irrigation) is possible in such soil.
