Starting a cannabis business is no small feat. It’s also a brilliant idea. Industry research experts New Frontier Data predict the U.S. cannabis industry will reach $30 billion in annual sales by 2025. This growing industry holds many opportunities and is met with an equal amount of challenges.
If you live in a state with a regulated medical or recreational marijuana program—and have the capital to kickstart your new company—a cannabis business can be a lucrative and desirable investment. As you prep your cannabis business plan, factor in budgetary allocations for the top five service providers that will help you successfully launch your new business.
Top Service Providers for Your Cannabis Business
Ask any successful cannabis business owner what they wish they would have done differently initially. You’ll likely hear a story about how they bootstrapped their way through turbulent legal situations, complex tax scenarios, and challenging marketing environments.
The cannabis business is unlike traditional business because it exists in this nebulous area where weed is still federally illegal, yet individual state laws govern production and sale. The regulatory environment can be challenging to navigate, but it can be much easier with the right partners. As you create your cannabis business plan, include these top five service providers.
Accounting & Finance
Managing finances can make or break any business, but especially a startup. Every dollar matters as you work your way towards profitability. The cannabis industry poses several financial hurdles that create entry barriers for some. For example, cannabis licensing alone can cost upwards of $50,000 in some states, not even calculating the application fees.
Some states require liquid capital to the tune of several hundred thousand dollars to qualify for licensure. Not only that but significant investments are required for application eligibility. Consider the cost of obtaining commercial real estate to operate your business, the security system necessary for compliance, equipment, supplies, and early-stage labor costs. The bottom line is that whether you go in with a ton of capital or just enough, you need someone to help you manage the financial aspects of your cannabis business.
Once you are operational and generating revenue, a cannabis accountant becomes much more valuable. Many major banks won’t touch the money from cannabis-related sales because marijuana remains federally illegal despite legalization efforts. That means there are many businesses still dealing with tons of cash. A dedicated bookkeeper is not only a safety precaution against theft, but a cannabis-specific accounting team will help you prepare for tax season.
Legal & Tax Services
If you hired the cannabis accountant, then your books are looking good. Next comes the ongoing hurdle of decoding the 280E tax code that cannabis businesses must abide by. Unfortunately, these tax laws are nothing like those of traditional companies, and many basic expenses are simply not qualifiable write-offs.
Section 280E denies cannabis businesses any expenses incurred related to the sale of cannabis. So, while growers and manufacturers might find a bit more wiggle room, distribution companies and dispensaries are minimal. Generally speaking, the basic deduction accounts for the cost of goods sold but doesn’t include advertising, rent, salaries, insurance, utilities, and a long list of everyday business expenses. In addition, keep in mind that every state has specifications for state taxes and employment taxes.
It can be so easy to make a misstep in compliance and face severe legal penalties. This is why it’s crucial that you have a lawyer on your side who is well-versed in all aspects of compliance, including local, state, and federal laws. Since cannabis tax codes are not in your favor, make sure to hire a legal and tax team that will be.
Sales, Marketing, & PR
Once upon a time, weed used to sell itself. If you were hawking anything marginally better than what was available on the black market, people could not wait to give you their money. The entire experience of walking into a dispensary for the first time was filled with overwhelming gratitude that this was even possible. Nowadays, cannabis branding has exploded into a rainbow of brightly colored packaging and unique naming conventions. Weed, edibles, topicals, and tinctures are sold in various doses, with flavor profiles and tailored effects for just about every occasion or ailment.
To compete in the industry, you want an experienced sales professional who knows how to scale. Selling is so much more than perfecting a pitch. The sales team is directly responsible for customer communication, and each salesperson represents your brand. You can hire and train a group of salespeople, but make sure you work with a trusted sales advisor who has demonstrated a history of increasing revenue, expanding market share, and increasing customer loyalty.
While the sales team can help the marketing team understand the customer, the marketing team can warm up leads and help nurture leads through the buying cycle. Traditional marketing has dominated the cannabis space for the last decade. Still, with delivery services and direct-to-consumer sales ramping up, digital marketing is becoming a mainstay for cannabis business. But don’t hire just anyone—marketers in the cannabis industry should know cannabis advertising laws, especially on social media.
To wrangle these efforts and make sure the public is aware of your killer company, you’ll want a sophisticated PR firm that can cast a wide net. The PR team is not only going to help you spread the word about your company and your business offerings, but they have the capability of helping you acquire capital and expand into new markets.
Software & Technology
It’s no secret that technology improves business operations no matter what industry you’re working in. Before cannabis businesses came out from the underground, the last thing you wanted to do was document anything regarding weed, let alone leave a paper trail. Fortunately, those days are (primarily) over for licensed cannabis business owners, and process and procedure have taken an enormous leap forward.
Licensed dispensaries are the biggest users of cannabis software. Each store has at least one if not multiple point-of-sale systems (POS) that allow them to ring up their customers and track sales. Manufacturers producing extracts, topical, edibles, and other infused products rely on enterprise resource planning (ERP) tools to effectively manage their processes. Imagine trying to recreate recipes on a large scale using only a notepad passed between departments. An ERP helps you track inventory and ensure operating procedures are consistent across teams.
Anyone involved in selling cannabis products will benefit significantly from a customer relationship management (CRM) tool. A cannabis CRM is designed to track, analyze, and manage leads allowing salespeople to offer better customer service while sharing valuable data with marketing.
These are just a few examples of the type of technology you want to budget for in your cannabis business plan. Think of these tools as the information warehouses that will help you effortlessly grow and scale your business with fact-based decision-making.
Laboratory Testing Services
If you intend to start a cannabis business that grows or manufacturers cannabis products, you will need to establish a solid relationship with a cannabis testing lab. This is the cornerstone of compliance for the industry, and each state has different requirements. For example, some states require only potency testing and quality assurance tests to prove that the products are free of mold, mildew, and pesticides.
However, some states also require that the products are tested for a range of microbial contaminants, physical contaminants, and even heavy metals that may have leached from the soil or growing medium. Freshly harvested cannabis flowers are only the beginning of rigorous testing to meet state compliance. If the flower is extracted, the oil is tested. If that oil is used to create an edible or other infused product, then the end product is also tested.
Additionally, several states add incremental steps in the testing process, like control studies, to ensure you are obtaining consistent test results before allowing for mass production. Ultimately, working with cannabis testing labs is non-negotiable for most cannabis businesses, so it’s best to source one (or two) early on.
Sourcing the Right Cannabis Service Providers for You
Many cannabis industry veterans have patched together plans during the early days of legalization, but now we are fortunate enough to have more sophisticated options for running a cannabis business. You simply need the right tools to help you find the right partners. That’s where we come in.
With cannecht, you can easily and quickly find your ideal service providers at any stage of your business. Whether you are just getting started or are looking to evolve your operations, cannecht can help. Learn more about our business here, or sign up today to become an early adopter. Follow us on LinkedIn and Instagram for more insider information about the cannabis industry and how you can successfully launch a cannabis business.