As cannabis becomes more mainstream and public sentiment tends towards the positive with regards to both recreational and medical use of the drug, more and more entrepreneurs are setting up cannabis startups. This trend has also been accelerated by the wave of legalization engulfing the United States, with New York, Virginia and New Mexico being the most recent States to get swept up by the tide earlier this month. As entrepreneurs continue to enter the cannabis industry, they must educate themselves on what it takes to be successful in the space. In the following, we highlight 3 things every cannabis startup needs to succeed.
The cannabis industry is quickly becoming one of the primary creators of new jobs in states where it is legal. In 2019, the cannabis industry employed over three hundred forty thousand Americans in various stages of the marijuana supply chain. The industry also contributed upwards of USD $13 billion to the national GDP. This was in 2019 when just a hand full of States had legalized recreational consumption of cannabis. The numbers are much more significant now, with seventeen States having it officially legal and another dozen having it as a decriminalized substance.
As a result of those startling numbers, it is easy to understand why investors and entrepreneurs are diving head fast into the cannabis industry. However, some things need to be in place in order to operate a successful cannabis startup that can grow into a large, publicly traded multinational corporation.
This article will highlight three primary ingredients that you need for your cannabis startup to succeed. We hope that this helps entrepreneurs make sure that these elements are all in place before opening their doors and likewise that investors check for them before investing in a cannabis startup.
3 things every cannabis startup needs to succeed
1. Required Licenses
This is one of the most complicated barriers to starting a legal cannabis business in the United States. Depending on where you are in the US, the requirements and number of licenses you have to get will vary depending on where in the US you register your cannabis startup. The body responsible for issuing the license will also depend on which state you are in.
In Nevada, for instance, the Department of Taxation is responsible for licensing and regulating both recreational and medical marijuana dispensaries. In California, startups can apply to either the Bureau of Cannabis Control, CalCannabis Cultivation Licensing or the Manufactured Cannabis Safety Branch. Depending on which part of the supply chain you are in, you will need to go to one of the above to apply for California’s appropriate licenses.
2. Solid Branding and Marketing Strategy
Now that cannabis is being legalized across the United States, retailers and farmers do not have to operate anonymously anymore. Cannabis businesses now have to brand and market their products just like any other legal business.
What is your end goal? What products are you trying to produce and what market verticals are you trying to sell into? Are you looking to grow boutique flower or are you growing in volume for extraction? Significant considerations must be made with both your capital and operational expenditures, your CapEx, OpEx.
It’s absolutely critical for cannabis startups to do due diligence on their consumers and profile their target markets. It is crucial that you know where your consumers go for information on cannabis and establish yourself as a thought leader in those spaces. Running a cannabis business is no different from any other business. Your business needs to develop ways to engage its users, generate qualified leads and convert those leads into sales.
3. Strong Financial Backing
Last but not least, cannabis businesses need solid financial partners and investors from the start. Due to cannabis not being legal on a federal level in the United States, many banks are limited in financial and liquidity support they can offer cannabis businesses. This means that for a cannabis business to succeed, it needs financial partners that are ready to provide the necessary liquidity to get it off the ground.
On the investors’ side, you need to make sure that the cannabis startup you invest in has more than one financial backer. This will help share the investors’ risk since it might be a while before the investors can start to make a return on their investments.
This is our list of the three most important things that have to be in place for a cannabis startup to succeed. Take care to make sure you have all of them before diving into the cannabis industry, either as an entrepreneur or an investor.
3 Things Every Cannabis Startup Needs to Succeed
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