Dec 14, 2021 Key Challenges of Starting a Cannabis Business
Key Challenges of Starting a Cannabis Business
If you are thinking of starting a new Cannabis growing business, there is a lot to understand just to get the product out the door and stay in legal compliance.
Some Cannabis Grower Decisions to make:
Whether to grow outdoors, in a greenhouse or in an indoor grow facility
What is the best type of grow lighting for my situation (lighting spectrum, energy consumption, power source type, etc.)
How to control humidity and provide heating
What is the best fertigation solution
How to control wastewater runoff (capture and truck out, reprocess, release to the environment, etc.)
What are the best strains to grow
What products do I want to supply (buds, pre-rolls, edibles, etc.)
What locality should I locate my business in
How to get a state license
How to stay in compliance with state regulation
Software needed for supply management
How to conduct banking
Etc.
In addition to all of the above there are many business considerations:
How Much Money Do I Need?
Probably the most important business consideration is how much money do I need to both start up my company and keep it solvent until I am cash flow positive. Of course, these questions presuppose that I know what size facility I want to build.
Demand Forecast – Price Forecast – Projected Financials
To answer the money questions, you need at least three things: A forecast of demand (and its growth curve over time), a forecast of the likely price I am going to get when I sell my product (and its path over time), and finally a financial projection for my company that takes these things into consideration. Of course, you will need to understand what the effects on these projections would be of lower and higher prices, of a delay in getting going (and hitting the market at a different time/price) and a number of other scenarios. A model of your business is best to be able to discern a variety of scenarios and their effect on profitability and cashflow.
How Do I Raise the Capital – Cannabis Business Plan
The second most important question is how do I raise the capital I need. You will need to be able to answer all the questions posed by potential investors. You need a solid management team with credible experience. You need to be able to tell your story in a convincing manner. The best way to do this is with excellent business plan. It needs to spell out what you plan to do, how you are going to do it, how much money you need, and the experience of your team. It needs to include projected financial statements and cash flow. It needs to lay out what can go wrong, what you are going to do about each scenario and answer all the questions they might ask. It’s best if you reveal your weakest points but provide your best case why this is a manageable problem right in the business plan. Serious investors will discover this themselves and you will lose credibility if you have not discussed it in advance.
At Apollo, we help companies that are starting a new cannabis business or an existing business that seeks to expand or enter one of the newly legalized markets by providing cannabis demand and price forecasts, performing financial modeling and developing business plans to raise capital. You can see that this is quite complicated. If you need some help, please reach out.
Bryan B Mason
Apollo Consulting Group, Providence, RI
No Comments