Hidden Hurdles: 5 Overlooked Challenges Facing Cannabis MSO Expansion

Cannabis is a unique industry because every state is an island. With cannabis prohibited on the federal level, interstate commerce is illegal and as such, MSOs must build their company state-by-state.

Regulations vary heavily in each state. What worked in Colorado or Oregon may not work in Maryland or Maine: each state has its own regulations governing product potency, licensing requirements, and operation guidelines. Adhering to these regulations is the top priority for MSOs, as failure to comply can result in expensive fines or license suspensions – and in the worst case, even forced business closure. Thorough research before expansions and staying on top of changing regulations is the best and only way to avoid non-compliance issues.

Regulation compliance can take up a large portion of the budget and employee time – but it’s far from the only challenge MSOs have to juggle.

There are two main types of challenges MSOs face: typical business challenges and unique cannabis challenges. Typical business challenges are faced by large companies, regardless of sector or niche. Unique cannabis challenges are specific issues that arise from the complex and uneven regulations governing the cannabis plant.

1. Labor Market & Talent Acquisition

Every time a new location opens, MSOs need skilled employees to run the business. Finding new staff in a new market is challenging for any business, but it can get even trickier in cannabis.

Cannabis-specific expertise is in high demand and short supply. Tere are not as many people who want to work with the cannabis plant as in other industries, and even fewer who truly understand the plant, its benefits, and its potential. Competition for talent in an emerging market can be fierce as multiple companies establish their in-state supply chains.

2. Supply Chain Integration

As mentioned above, every cannabis market is an island – which means that cannabis businesses must be self-sustaining. Establishing a supply chain that is both reliable and cost-effective is no small task. Doing so requires weeks, if not months, of careful planning to set up everything: from sourcing raw materials and high-quality genetics to establishing packaging, securing transportation logistics, and distribution.

3. Market Saturation & Competition

There are different kinds of challenges associated with entering a nascent cannabis market versus an established one. Mature markets often have established businesses, presenting a high amount of competition for cannabis businesses. Here MSOs must focus on differentiating their brands by understanding customer preferences and developing effective marketing strategies. As cannabis businesses know, it’s not enough to just have good products – you have to stand out above the rest.

4. Banking & Financial Challenges

Cannabis businesses of all sizes face the same banking challenges, thanks to the continued federal illegality of cannabis. The size of MSOs may afford them more financial options, but working in cannabis means limited access to traditional banking services no matter your operational size. While there are options for consumers to use certain types of cards to pay, cannabis dispensaries continue to be cash-intensive operations, which present increased security risks for staff and establishments.

5. Local Opposition & NIMBYism

Anyone working in cannabis knows this plant has incredible potential to help people. But decades of cannabis prohibition have created a culture of misinformation and fear that still presents challenges for plant-touching businesses. Securing local approvals for cultivation, processing, and retail facilities can be challenging, particularly if residents are not in favor of cannabis coming to their town. The NIMBY attitude (Not in My Backyard) can be used to weaponize local zoning ordinances and create loud pockets of resistance that are challenging to overcome.

Regulatory compliance isn’t the only thing cannabis businesses need to worry about. As laid out above, there are many challenges that can come from all angles for cannabis MSO expansion. But it is not all doom and gloom – there are actionable steps that every company can take to overcome hurdles and build a successful, long-lasting cannabis business.

Community Engagement

The best way to overcome community resistance is to become a pillar of community engagement. Proactivity engaging with locals in communities at every opportunity gives you a chance to address their concerns. It’s important not to write these off – actively listening to concerns and addressing them at community forums such as town halls and community benefits shows that you care about your impact. If residents have concerns about public safety, traffic patterns, or security threats to neighborhoods, those need to be your concerns too.

In addition to engagement, it’s important for MSOs to integrate themselves into the community and support local initiatives. Partnering with local organizations can help build goodwill and foster positive relationships. Join a food or toy drive during the holidays, raise money for local animal shelters, and give back to charities that support your neighborhoods.

Talent Management

Attracting and retaining top talent comes down to a simple principle: treating people as important and unique. Job seekers are not asking for anything excessive – they want livable, competitive salaries and supportive benefits. They also want opportunities for advancement, such as internal training programs and continued education classes. Offering these things is a fast way to differentiate yourself in a market where many companies are seeking the same talent.

Once you have top talent, it is far more cost-effective to retain than to replace – so fostering a positive work culture is equally important. People want to feel valued and supported at work while being treated like individuals with lives outside the office. Publicly recognizing employee contributions, being flexible with parents and caregivers, and promoting growth go a long way.

Supply Chain Optimization

The supply chain is the backbone of MSOs – and any fluctuations can have a ripple effect on business. Diversified sourcing helps stabilize yourself against unexpected changes and ensures you have a reliable and consistent supply of raw materials. Integrating technology can also help, from optimizing transportation and distribution channels to tracking inventory, product traceability, and ensuring overall supply chain efficiency.

Market Differentiation

It takes a strong brand identity, innovation, and connection with your audience to stand out in a crowded marketplace. Your products need to stand out on a shelf filled with products, which requires thoughtful packaging and a strong sense of brand identify; knowing who your products are for and what gap they fill.

Customers are inundated with similar choices, so product innovation is essential to meet evolving customer demands. But all of this goes nowhere without data-driven marketing practices – truly understanding your customers and their needs. Do not try to be everything to everyone – the most successful brands cater to a specific audience sector with products that cannot be replaced in the customer’s cannabis routine.

Financial Strategies

There are a few strategies MSOs can adopt to overcome financial challenges.

1. Explore Alternative Financing Options: When traditional banking options fall short or are unavailable, alternative financing options can be the answer. Explore avenues of private equity, venture capital, and cannabis-specific lenders to get the financial backing your business needs.
2. Implement Robust Financial Controls: Profitability is tricky in cannabis and you need to know where your money goes. Oversight tasks such as managing cash flow and monitoring and optimizing expenses can help you maximize your profitability.
3. Strategic Partnerships: How can partnerships help you reduce your costs? Finding win/win partnerships with ancillary businesses can help reduce expenses. Explore partnering with technology providers, packaging companies, marketing agencies, and smaller cannabis businesses to reduce overhead and increase your bottom line.

Successfully operating a multistate cannabis company is no small task. It requires strategy, thoughtful execution, and a steel eye on your bottom line. It also means taking the necessary steps to protect your business from unexpected changes or losses.

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.