Whatever you call it, cannabis, pot, or marijuana, the buzz-inducing weed is taking the U.S. by storm as more and more states declare it a legal substance. This has resulted not only in a boon for cannabis growers, but also ancillary pot businesses like cannabis trucking and delivery, cannabis testing laboratories, cannabis stocks, cannabis retail outlets, cannabis insurance companies, and more.
According to a new report, the cannabis business did a brisk $9 billion in sales in 2017 and is expected to double that by 2022. But beginning your own cannabis business isn’t all that simple since the laws are always changing and it’s important to keep up with them so you don’t end up in legal hot water. That said, if you’re willing to do you due diligence, the cannabis industry can be very lucrative.
Marijuana consumption is still technically illegal under the federal law. It’s also still illegal in many states. But in lots of places, it’s become legal for medical purposes. Now, a handful of states have declared it legal for recreational use.
What Kinds of Cannabis Businesses Can You Start Up?
There are currently lots of paths to choose from in the ever-emerging legal cannabis industry.
The three main categories are as follows:
You can cultivate cannabis which means you would be growing it for people to consume whether for medical or recreation purposes or both. But to do this you will require some kind of horticultural knowledge. If you don’t possess this knowledge, it might be best to consult with or even hire someone who does.
A wholesale cannabis operation is said to cost around $42 per square foot in startup expenditures. The money is general spent on air circulation equipment, lighting, electricity, seeds, water, and other miscellaneous items. Expect to spend around $400,000 in startup costs and annual operating expenses.
Build Infused Cannabis Products
“Infused products” are cannabis consumables that are combined with edibles, botanicals, oils, lotions, ointments, tinctures, and even beverages. This is said to be a booming market. For instance, in 2016 the state of California alone raked in almost $200 million in infused cannabis products.
Since the median startup cost and annual operation expense of infused-product cannabis manufacturing is only $250,000, it is less expensive than growing pot. A good choice for those entrepreneurs operating on a limited budget.
Open a Store
Cannabis retail locations are known as dispensaries or collectives. These are places consumers can spend money on marijuana safely and legally. The major business is said to come from those seeking medical relief.
The experts state that you might be required to “jump through regulatory hoops” to break ground on a dispensary since you’ll need to submit an application plus pay for licensing. But these retail businesses usually have a big payoff, especially with lots of consumers seeking out legitimate stores to legally buy cannabis.
What’s the median startup and annual operating expense for a retail store? Figure around $195,000 not taking into account today’s seven percent “official” annual inflation rate (the true rate is more like 12.5 percent).
Necessary Steps in Beginning a Cannabis Business
Here are three things you’ll need to do.
You need to have a good grasp on federal cannabis laws prior to starting your business. You also need to research your state’s laws regarding initiating a cannabis business, plus the laws regarding cannabis consumption in general. You need to get an idea of permits and licenses you will require and how much they will cost.
Speaking of costs, you’ll want to get a good idea of financing options and accordingly, how your business will manage its financial responsibilities. Keep in mind that many banks refuse to finance marijuana related businesses which is a huge reason why three-quarters of all existing cannabis operations don’t even have a traditional bank account.
You’ll also need to look into applicable insurances.
Draw Up a Business Plan
Creating a business plan is intended to demonstrate the feasibility of your chosen cannabis business. Include in the plan a company description that spells out who the operation serves. Also include a market analysis an organization and management chart, plus a marketing and sales outlook along with financial projections for the both the short and long term (three to five years at minimum).
Location, Location, Location
The location of your business will be of paramount importance if you are plan on opening a dispensary. That’s because you want a location that’s easily accessible to your target retail market. Even if foot traffic isn’t of special importance, find out what the zoning laws in your county are. These laws can affect where you can or can’t place your cannabis business.
Also keep track of how much rent you’ll be paying since today’s skyrocketing rents can eat into your overall profits. By choosing the right location, you might be able to keep your overhead low.