5 Hard Truths About Running a Cannabis Business
When I think about my time running Dynamic Jack Cannabis Co. in New Mexico so far, the lyrics of one of my favorite songs by one of my favorite musicians — Coldplay’s Chris Martin — come to mind: “Nobody said it was easy. No one ever said it would be this hard. Oh, take it back to the start.”
I started my cannabis career as the General Counsel of a privately-held cannabis multistate operator in Illinois in 2019. I drank from the firehose for two and half years (which in cannabis is a lifetime); absorbed everything I could about the industry and all its complexities; created a great nationwide network; and thought I knew enough to go out on my own and start a cannabis company.
Even with all that knowledge, I made mistakes along the way that I might have been able to avoid if I knew then what I know now. So, “let’s take it back to the start.” Here are the hard truths I’ve learned:
Ideally, you should be knowledgeable in every aspect of your business before launch.
While I felt relatively comfortable with the legal, regulatory and strategy pieces of a cannabis business before I launched Dynamic Jack, I was far less familiar with the actual production and cultivation of cannabis. Had I known when I launched what I know now, I might have been able to avoid some painful mistakes. What kind of things do I wish I had known? How to read a certificate of authenticity (COA). Why the PH level in soil matters. That auto-flower is finicky. How a commercial reverse osmosis system (RO) works. What nutrients do and how to decide which ones to use. Seeds vs. Clones. Plant cycles. Light cycles. Wind. Rain. Mold. Transplant shock. Spider Mites. Russet Mites. How and why female plants turn male (“herming”) — yep, this is real. That closing a pre-roll is a skill; labeling packages takes forever; and seed-to-sale systems are hard to use. I could go on and on.
If you have knowledge gaps, you better make sure your partners can fill them.
This is where it gets tricky because if you don’t know every aspect of the business (and let’s be real; most of us don’t, which is why we seek partners in the first place), how do you know the right questions to ask of a potential partner? My advice: get an expert. Find someone you trust who knows the space and ask them to help vet your partner for knowledge and experience. Then, make sure you really listen to the feedback, and ask questions. You need to be as certain as you can that your partner can do what they say they can do.
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Don’t follow your gut when it comes to your team.
Get the cold, hard facts, and don’t discount or rationalize them. One of the beautiful things about cannabis is the common love most of us share for the plant, but do not let that cloud your judgment. You need to know the baggage your teammates come with and then decide whether to proceed. That could mean background checks, reference checks or just a little DIY due diligence. Obviously, many people working in cannabis have been victims of the war on drugs and have past criminal convictions as a result. That’s not the issue; the issue is understanding whether your teammate knows what they are doing; whether they will work hard; whether they are good communicators; whether they will be good ambassadors for the brand; and importantly, whether they can get along with you and the rest of the team. In cannabis, there is very little room for error due to capital constraints, so the better choices you make at the outset, the better off your business will be.
Someone is going to have to bankroll/backstop the company for at least a year, probably more.
If you are a small start-up cannabis operator, there is simply no way to raise money right now outside of friends and family (and maybe crowdfunding). Period. Full stop. In my opinion, to get up and running, every partner must put in money at the outset and at least annually until the company is financially stable. Even with that financial foundation, there will be moments where you will be running on fumes — waiting and hoping (whoever said hope isn’t a strategy has never worked in cannabis) for money to come. And, during those times, there will be monthly bills and other expenses that need to get paid to continue operating and maintain relationships with vendors. If there is no one on your team who can pay the bills (and hold those expenses until they can be reimbursed, whenever that may be), the bills eventually overtake the business like quick sand.
Being capital constrained is a real and scary thing.
I’m not sure I truly understood what it meant to be “capital constrained” until running a cannabis business. In other industries, and especially as a women-owned and operated company, Dynamic Jack would be eligible for capital in the form of low-interest small business loans, lines of credit, and even grant money. But in cannabis, those opportunities don’t exist, and the ones that do come with exorbitant interest rates, personal guarantees and collateral requirements (and they must be serviced right away with no abatement). So, the question of money becomes a constant source of stress and a distraction from the operational needs and growth of the business. Keeping that fear and distraction at bay is key to your survival.
“Nobody said it was easy.”
I knew that starting and running a cannabis company would be challenging. But, I didn’t know “it would be this hard.” If knowledge is power, however, then the advice above will be helpful for anyone considering starting a cannabis business. It’s a bumpy road, but if managed well from the start, “hard truths” don’t necessarily need to become hard lessons.
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