From Seed to Sale: A Roadmap for Cannabis Business Planning & Strategy

The cannabis industry, young though it is, is fast-paced and subject to change without warning. Profitability can be elusive, each state is an industry unto itself, and yet year over year this industry expands, through changing legislation or the will of the people. New states come online, creating a wealth of opportunities for early arrivers, and existing state markets become saturated and burned by price fluctuations or compressions.

Time and time again this pattern has played out and still, the industry surges forward.

Operating in this space requires cannabis business planning and multi-tasking of the highest degree: managing complex regulations, strict compliance requirements, and day-to-day business operations.

Companies must intimately understand the landscape of the state (or states) they operate in – where is the next opportunity? Are consumers loving beverages or sticking to edibles? Are prerolls maintaining their top spot or are vapes coming to knock them down? The most successful businesses in this space have a plan or a strategy and stick to it but can be flexible when needed.

Having a comprehensive cannabis business plan is important for every business in this industry. This document outlines every aspect of your business — where you’re starting and where you want to go. It acts as a guiding light for making decisions regarding growth, scaling, and investments, so take its creation seriously.

What goes into a business plan?

• Executive summary. This short section speaks to who your business is, what you stand for, what you do (your unique value proposition), and who you serve. Essentially, your executive summary is a lighthouse for your cannabis business strategy.
• Market analysis. This section is complex and analytical, but it’s incredibly important. You need to know the state of the market that you’re operating in — and this changes state by state. You have to understand how many existing cannabis businesses do what you’re doing, who your audience is, and what they’re willing to pay for your services. You can also consider this section through the lens of a competitive analysis.
• Business description. Separate from your executive summary, this is a high-level overview of your business — the structure, the ownership, the mission, and the vision.
• Operations plan. This is the nitty-gritty of how your business runs. Day-to-day operations can overwhelm even the most experienced business owner if you don’t have a plan or a scope for how to handle it. This section outlines the “who, what, when, and where” of exactly how your business runs — the objective of each department and their responsibilities, budgets, quality standards, scope of work, best practices, and compliance go here as well.
• Financial projections. The financial section of a business plan is often the most dense – and for good reason. Every business aims to be profitable, but this can be particularly challenging in cannabis. You need to break down your funding, areas of revenue, cost of goods sold, the timeline for production, salaries, bonuses, and all the other financial details that can make or break your business.
• Management team. This section can fall under the operations plan or stand on its own. The management section breaks down who is in which roles and exactly what they are responsible for. This can also be a place to project future C-suite roles for a fledgling company planning its long-term growth.
• Risk management. This can be its own plan or part of your larger business plan. A risk management plan is a key piece of operations for a business, breaking down exactly where your business is vulnerable and has exposures, and areas where your business could get hurt. It then goes a step further to analyze these risks, identify how likely they are, the size of the impact, and find solutions for each risk.

While writing a cannabis business plan may not sound like the most fun a business owner can have, it is important. Plus, it’s a chance for you to get creative and infuse your brand voice and personality into a guiding document.

Cannabis businesses must face and manage risk — no sticking your head in the sand. Your risk management plan can stand alone or be a part of your larger business plan, but either way, you need to create one.

This plan helps you identify and assess any risks that your business may face, both likely and unlikely. You also must develop strategies to mitigate these risks, whatever that means to you. Risk management plans address compliance and regulatory requirements, as being out-of-compliance is a massive business risk. One of the best ways to cover your exposures is with insurance policies.

Property insurance

Cannabis companies are scattered all over this big blue ball, and not one of them is immune to natural disasters. What’s more, property damage can occur in many ways, from violent storms to burglaries to fires. Property insurance helps ease these concerns by reimbursing cannabis companies for direct property loss. Instead of digging into your business savings to find temporary work arrangements or customer appeasement, capital from the policy does the heavy lifting for you. This policy covers income lost and payroll during the interruption period.

General liability insurance

General liability offers broad protection against some of the most fundamental risks cannabis companies face. Known as “slip-and-fall” or “all-risk” insurance, this policy covers personal or property damage and bodily injury occurring on the business premises.

Product liability insurance

Cannabis companies offering tangible products or services risk third-party lawsuits claiming bodily injury or property damage. Product liability insurance covers defense fees and settlements, even for ungrounded claims. This coverage is particularly critical in the cannabis space as testing and manufacturing aren’t regulated at the federal level.

Cyber liability insurance

Cyber insurance protects companies from third-party lawsuits relating to electronic activities (i.e., phishing scams, ransomware, etc.). Plus, it offers many recovery benefits, supporting data restoration and reimbursement for income lost and payroll spent.

Despite how popular cannabis is, cannabis products do not sell themselves — especially in a crowded market. Having a marketing plan is an important aspect of any business, but particularly in cannabis.

First ask yourself, who is your audience? Then ask yourself: how do you know they’re your audience? Have you conducted market research? Polled existing customers? Checked the demographics of the area you’re operating in? Effective marketing cannot get off the ground unless you know precisely who you’re marketing to.

Once you know your audience, you can begin to create marketing campaigns to boost awareness and ultimately sales of your product. Most customers don’t walk into a dispensary and grab the first random brand they see off the shelf. Instead, people go for brands they know or brands that have been recommended to them. In this aspect, your brand reputation is important.

For example, do budtenders recommend your product? Do your customers speak highly of working with you? Or do you have a reputation for delivering “overpriced boof to unknowing consumers?” (If that sounds harsh, you should see how brands get raked over the coals on consumer platforms like Reddit. Managing your reputation is an important part of a cannabis business strategy.)

Finally, how are you acquiring new customers and retaining existing ones? Do you offer seasonal sales or returning customer discounts? Do you have a loyalty program or a partnership with your retailers? Do you host pop-up events to get your products in front of customers? While cannabis businesses must adhere to strict marketing regulations, there are many tried-and-true marketing strategies that work.

Financial management is a particular challenge in the cannabis industry. Financial forecasting from quarter to quarter can be tricky, especially if prices change along the supply chain. Cash flow management is an ongoing task for all cannabis business owners, as many deal with unpaid invoices from suppliers or distributors and price crunches. Taxes are heavy in this industry, on the state level and the federal level, with section 280-E regulating federally prohibited industries and disallowing write-offs.

But it’s not all doom and gloom for profits. Cash-strapped businesses can seek out investments through equity financing or crowdfunding, or through investors. If your company is in a cash pinch, consider debt financing through your banking institution. And get involved with politics in your state. If taxes are a burden to cannabis businesses, lobby legislatures to release the reigns and let the cannabis industry flourish.

How a business runs on a day-to-day basis can make or break even the most promising companies. Operational inefficiency is a death sentence, especially in a cash-strapped industry like cannabis. Structuring your business for operational success then, can be the difference maker in a crowded market.

Examine the operations of your business. Start with your supply chain and procurement. Where do you get products from? How long does it take to get them and how long do they spend with your team? What does your company spend to acquire these products and what do they sell them for? What would happen if there was a supply chain disruption? Do you have backup vendors?

This leads to inventory. How long do products stay with your company? How are you tracking inventory and the ebb and flow? Are you using a software system to automate it, or are you still tracking inventory by hand? What areas of your business are using technology to their advantage, and what areas could benefit from automation?

Next, consider your team. What is the internal culture of your business? How do you acquire top talent, and once you have it, can you keep it? Are your employees empowered to speak up when they see something that is out of compliance or not in line with your quality control standards? Do you have a Human Resources team capable of helping employees sort out problems and find solutions? Operational efficiency is an ongoing task, and most businesses can benefit from a regular analysis of this, be it quarterly, bi-annually, or annually.

The road to success in the cannabis industry is long and fraught with challenges. But for visionary entrepreneurs who don’t get bogged down by the quagmire of this industry, cannabis represents a long-term quest to establish a business, build a brand, and make a difference in the lives of your employees, customers, and community.

Protecting your cannabis company can seem confusing; however, we’re a full-service insurance brokerage working with carriers worldwide to offer you the best coverage possible. We’re here to help! Please reach out to us today by email [email protected] or calling 646-854-1093 for a customized letter or learning more about your cannabis insurance options.