February 24, 2016

The Cannabis Industry Requires Reinvention, Not Revolution

This idea that cannabis means building an industry entirely from scratch, however, is neither necessarily true nor truly necessary. The building blocks for a successful and sustainable legal cannabis industry exist all around us; we just need to shape them to fit our needs.

It’s been 20 years since medical cannabis was first legalized in California, but due to the recent unprecedented growth geographically and monetarily the phenomenon of legalization still seems brand new. In a lot of ways the industry IS brand new compared to those early days on the West Coast. Today, according to the 2016 ArcView Report, over half of the U.S. population lives in a state that provides access to some form of legal cannabis, be it personal adult-use, medical-use, or CBD oil. The plant is heavily regulated in many places across the country, including in Colorado, Washington State, Oregon, and Alaska which have all legalized cannabis for consumption by adults over 21, and in 2016 a number of states on both coasts are set to follow suit. Because the re-introduction of cannabis as a commodity has come so quickly in recent years, and because the plant impacts so many different markets, many have been tempted to call this a revolution. The overturning of an old system to build something completely new. This idea that cannabis means building an industry entirely from scratch, however, is neither necessarily true nor truly necessary. The building blocks for a successful and sustainable legal cannabis industry exist all around us; we just need to shape them to fit our needs.

Technology is changing the world and rather than having to modernize old systems the cannabis industry has the opportunity to build its infrastructure around cutting edge ideas.

This isn’t to say we shouldn't innovate or that pure creation isn’t needed – both of these things are essential. Technology is changing the world and rather than having to modernize old systems the cannabis industry has the opportunity to build its infrastructure around cutting edge ideas. Our workflows will grow up around seed-to-sale software like BioTrack THC or MJ Freeway, and our database of information is already being shared and codified on websites like Leafly, Project CBD, and CannaRegs, or through apps like Growbuddy. Additionally, the industry faces unique legal challenges that it will need to overcome, such as the tax burdens associated with 280e, the limited access to banking that forces business to be handled in cash, or advertising limitations in print, broadcast, and on social media that other legal businesses do not have to deal with. It will take real ingenuity to fill these needs and overcome these obstacles, but with focused imagination the solutions to these problems will become the foundation of the industry.

The majority of operations in a cannabis business, though, are not a matter of pure invention. They are a matter of harnessing decades of experience accumulated in other industries and applying it to the cannabis space. The skills and institutional knowledge involved in running a retail business – including staffing, controlling inventory, tracking sales, and logistics – apply to any product and differences between markets can be compensated for through standard research. We're finally beginning to get consumer data on cannabis sales courtesy of firms like New Frontier Financials but raw data is meaningless without the skill to turn it into actionable goals. This also holds true in fields like design and marketing where underlying skills and best practices have been honed over time by countless professionals and only require educated tweaking to apply to cannabis. Business development, strategic planning, and brand development in cannabis don’t require a seismic shift from the standard approach; they only require a marriage of experience with the specialized knowledge of this market.

Though in a lot of ways legal cannabis is every bit as fresh and new as reports are stating, there are a lot of lessons we can learn by tapping the right experienced partners and doing research into existing solutions. The ground floor has yet to be built in this industry, but we don’t need to create a new hammer to build it.

June 29, 2015

5 Hurdles For Cannabis Businesses

Legal marijuana is the fastest growing industry in the United States and is a market already valued in the billions. Despite this incredible growth there are still a number of concerns for entrepreneurs and investors interested in entering the space. These are the five biggest issues facing businesses in the cannabis sector.

Federal Prohibition

Though twenty-three states have legalized medical cannabis, including four that have legalized regulated adult-use, marijuana is still federally illegal. It is listed in Schedule 1 of the Controlled Substances Act which puts several limitations in place regarding research, interstate commerce, and of course federal criminal liability. The federal government, however, has taken steps in recent years to guide enforcement toward criminal elements and away from state-legal cannabis businesses. The Cole Memo and FINCEN guidelines indicate that the Department of Justice is reflecting this focus, and the House of Representatives recently passed a spending bill which prohibits the Drug Enforcement Agency from using funds to interfere with state marijuana programs.

Section 280e of the U.S. tax code, however, is still a large barrier and there are movements in place to except legal businesses.

Banking

Because of the federal prohibition the banking industry has been reluctant to enter the cannabis space, meaning that businesses that touch the cannabis plant are restricted to cash transactions. Though a few banks have tried working in the space, several have exited citing the high costs of compliance. This restriction results in businesses with no bank accounts keeping large amounts of cash on location, paying bills in cash, paying employees in cash, and paying taxes in cash.

It also means that young companies are often unable to receive business loans, though firms like Salveo Capital are stepping in to provide funding for businesses touching the cannabis plant.

Stigma

These two issues can change as public attitudes change. Marijuana legalization is supported by a majority of Americans, with medical cannabis programs receiving a nearly 80% approval rating in swing states. Despite this progress stereotypes and stigmas still exist, and are an impediment not only to legalization efforts but also to expanding the marijuana market to mainstream consumers.

Though there will always be a space for marijuana-forward brands, for the industry to attain legitimacy and expand beyond its countercultural niche it must rehabilitate its image.

Bad Actors Affect Entire Industry

This image problem is made worse since any bad actors reinforce stereotypes for everyone in the industry. When the biggest security concerns are a business’ own employees it makes legislators skeptical of the seriousness of the industry, and makes investors hesitant to enter.

The long marijuana prohibition has resulted in a lot of people who are looking for reasons to reject legalization. Cannabis professionals have to be more responsible than counterparts in other industries, and must be hyper-compliant with existing laws. Additionally industry leaders must not only welcome regulation, but should take an active hand in crafting it.

Lack of Traditional Business Experience

Many in the first wave of legal marijuana entrepreneurs may have had experience in cannabis, but as the industry grows it's shown a need for more experience in business. Passion can successfully launch a store but a long-term, sustainable, growing business requires strategic planning and the kind of knowledge and savvy that only comes with years of experience. One of the biggest misconceptions about the cannabis industry is that it's an entirely new animal. It isn't. It's a new application of business models that have existed for decades and the companies most willing to leverage that experience and combine it with entrepreneurs with experience in cannabis will be the most successful going forward.

Overcoming these obstacles will not be simple. It will take hard work, planning, and dedication. It will involve fording a river of legal, social, and financial challenges. On the other side of the river, however, will be one of the most lucrative and transformative opportunities the country has ever seen.