Cannabis Business Models 101
This article is the fourth in a series entitled: “So do you want to start a canna business?” created in partnership with Good Tree Capital. This article will focus on different types of cannabis companies.
As the cannabis industry takes shape, the broad range of companies that make up the industry really comes into focus. As we explained in the first article in the series, people often think pharmacies are the golden ticket to cannabis, but they don’t realize that there are so many more options in this emerging industry.
Learn about the types of cannabis companies
Examples of plant contact and ancillary businesses along the entire cannabis supply chain.
There are only two main differences between the types of businesses in the cannabis industry: those that touch the plant, and those who don’t.
Companies in contact with plants treat cannabis (the raw flower, infused products, etc.) directly and must be licensed by the state. Non-plant contact companies (also known as ancillary businesses) are companies that offer products or services that support the industry but do not deal directly with products. Some business licenses may still be required.
Cannabis companies in contact with plants
Companies that come into contact with plants require licenses and are subject to the rules and regulations in every state.
Growers are those that breed, grow, and harvest cannabis. They deliver raw flowers to pharmacies to be consumed in plant form, or to processors and manufacturers for THC / CBD extraction.
Laboratory tests and research
Cannabis testing laboratories determine the chemical makeup of cannabis products, usually defining the effectiveness of THC and CBD, as well as quality testing of the product to ensure that it can be safely sold to consumers.
Cannabis Testing Regulations: A Government Guide
Processing and manufacturing
Manufacturers extract THC and / or CBD from raw flowers and transform it into a wider range of consumer products such as groceries, vape cartridges, topical products, tinctures, etc. They supply manufactured products to pharmacies.
Traders move cannabis flowers and manufactured goods from point to point in the supply chain. When cultivators harvest the plant, dealers transport it to laboratories for testing. When laboratories test the system, dealers transport the tested system for processing and manufacture or to pharmacies.
Pharmacies and delivery services
Pharmacies and delivery services are the only license types for businesses and customers as they sell products to the end user, either from a retail location or through delivery capabilities. The pharmacies obtain their stock wholesalers from cultivators or from processors and manufacturers.
Some states are opening up new opportunities for delivery services as an opportunity for social justice and for creating new business within the framework of established licensing measures.
These companies are businesses where you can consume cannabis products on site, usually in the form of lounges or private venues. Relatively few states have this license type.
Bonus tip: make sure you understand your market
Understanding the market is important for entrepreneurs interested in starting a plant-touching business. Each state has its own rules and regulations governing license types and quantities.
The availability of licenses can have a dramatic impact on your projected profitability and growth, and therefore the decision whether or not you should choose it.
Take Oregon and Massachusetts as an example. When recreational cannabis was approved in Oregon, the state alone issued 2,100 producer licenses. The oversupply of cannabis led to a sharp drop in prices and ruined the prospects for generating revenue in the supply chain.
The weed surplus was so great that it would take an estimated 6.5 years for everything to be sold without additional cultivation. Massachusetts, on the other hand, had a much more limited license rollout with only 787 licenses being awarded across the supply chain.
While this is less than half the total number of licenses in Oregon, Massachusetts cannabis sales exceeded $ 1 billion in less than two years. It took Oregon six years to cross that threshold.
Additional cannabis deals
In comparison, subsidiary companies do not touch the plant and are therefore not faced with the licensing and regulatory hurdles of companies that touch plants. Subsidiary companies offer the type of products and services that non-cannabis companies and ordinary people deal with on a regular basis.
There are small local general contractors who have been building commercial and residential developments in their communities for decades. Now is the opportunity to apply old skills to a new and booming industry.
Government regulations often dictate very precisely which functions must be built into licensed facilities. Controlled entrances and exits, mantraps and the locations of the product and money safes are just a few examples.
General contractors who know their state’s cannabis-specific building codes and who specialize in incorporating these rules into building projects will be in great demand, especially at pharmacies.
Packaging companies offer containers, baggies, bottles, and packaging for cannabis products. At least the packaging must be compliant, with childproof protection and labeling that provides the relevant information.
Sourcing inexpensive packaging is a major challenge for the industry, and we are increasingly seeing a demand for innovative alternatives that are aesthetically pleasing, environmentally friendly and sustainably sourced.
Specialized professional services are of tremendous importance in all parts of the cannabis supply chain. This includes attorneys and accountants who use their understanding of cannabis laws and tax strategies to structure your business for long-term success while minimizing your tax expense.
Also included are marketers who can help you build a distinctive brand in a rapidly commodifying industry. These are just a few of them.
Technology products enable cannabis operators to run their businesses efficiently. For example, the seed sales software enables cannabis companies to track inventory levels at every stage of the supply chain, from harvest to point of sale to the customer, and report to regulators.
Some technology entrepreneurs use code to manage everything from point of sales and employee training modules to customer relationship management and product delivery. All of this requires specific solutions given the unique characteristics of the cannabis industry.
Whether you are new to cannabis use or a connoisseur, every customer needs some type of accessory to complement their smoking experience. There is a huge market for paraphernalia ranging from glassware like pipes and bongs to artisanal goods like ashtrays and storage boxes.
The key to success is being able to apply your existing expertise to this emerging industry without the hassle of getting and maintaining a license. The opportunities among the ancillary businesses are plentiful. The question is, are you able to capitalize on your strengths?
Carve out your niche in cannabis
To find a niche that will grow with the industry, you need to understand your target market, but also understand what you are bringing to the table. To refine the answer, ask yourself:
Where do you have unique expertise and experience? How can your expertise be transferred to the industry? What resources are available to you? Teammates, employees, capital, equipment?
As you ponder these questions, you may find that you have the tools to support the industry in a way that is unique to your strengths. It’s not about whether you fit into the industry, but how you fit into the industry.
The U.S. cannabis industry now supports 321,000 full-time positions
It may feel daunting, but always remember that at this point it is everyone’s game. It’s only the beginning in the cannabis industry, and the players who are establishing themselves today will own the future.
Some compare the emergence of cannabis with the development of the alcohol industry after the ban.
It took decades for the alcohol industry to transform itself into what we see today, including: breweries and distilleries, bars and lounges, wine tastings and beer gardens, 6-packs in the supermarket and much more.
Years of creative ideas, innovative efforts and successful concepts made this industry what it is today. As a potential canna biz owner, the same power is in your hands!
Read more from Good Tree Capital