The marijuana market is on the edge of a seismic shift when it comes to how the industry does business. Experts predict big brands like Coca-Cola, which has expressed an interest in CBD-infused beverages, could roll out such products in as little as two years. Indeed, this infiltration of big business in the cannabis community has left many cultivators scratching their heads on how to monetize and compete.
However, when it comes to cultivating the crop, there are ways to grow your cannabis business while ably competing with and standing up against the big boys.
According to Jeanette Ward-Horton, vice president of global marketing and communications for cannabis compliance software provider MJ Freeway, D-day hinges on federal legislation, which she predicts will happen in 2020.
“Everyone is preparing for the day, or preparing for now,” Ward-Horton explains. “I think the cannabis companies we deal with, whether they are small or big, they know those brands, like Coca-Cola, are coming. For some of the companies we work with, their hope is that they will get there fast enough and they will be a competitor to those big brands. There are those who are saying they will stay local and stay small, and that [strategy] will win, too. I think it will be two years — because it’s two years until [the presidential election]. For the cultivators, the mindset has shifted to, ‘I am now a product and brand,’ rather than just producing a good quality flower.”
MJ Freeway was founded in 2010 by Jessica Billingsley and Amy Poinsett. Billingsley, who came from a career in information technology, invested in one of the first legal dispensaries in Colorado. Realizing there was a gap in the market for the kind of software needed by cannabis businesses to allow them compliance in seed-to-sale tracking, Billingsley teamed up with tech exec Poinsett, and together they created the first software built specifically for the cannabis industry.
Now, the company provides data and systems to thousands of businesses, which enables them to see the real-time trends and predictions in the marijuana marketplace.
Ward-Horton says many forward-thinking growers are already looking at expanding into different areas of cannabis as a way to further boost their income. And that means thinking big to stay relevant.
“We are seeing the market more vertically,” explains Ward-Horton. “We are seeing verticals we haven’t seen before. Wholesale and distribution are being created because we didn’t start out with those being licenses that existed. I am looking forward to new verticals, like cannabis cafes. We have new legislation in Denver that has passed. And there is more legislation happening in Oregon. People are coming to us, saying, ‘I have ideas across multiple verticals,’ and asking if they can maximize their margin that way. Cultivators are now saying, ‘I produce my own oil and I also need to be my own manufacturer and processor.’ They want to produce products and aren’t just going to cultivate cannabis.”
MJ Freeway advises clients to have around $10 million in the bank before launching a cultivation startup. This figure should be enough to cover build-out of the grow facility and initial operating costs, including supplies, security and labor. However, Ward-Horton clarifies, “This figure is highly subjective to considerations such as if you’re growing indoors or outdoors, greenhouse or warehouse, new construction, size and so on.”
Calling the shift in the marijuana mindset a great thing, Ward-Horton adds that cannabis genetics is another avenue currently being explored and embraced by the community, with pot producers “doing fascinating things” in this science-driven area of cultivation.
“Cultivators are devoting square footage to the sole purpose of research and development, growing plants for the purpose of crossing and breeding and then landing on the right genetics.”
She adds that the big deviation she’s noticing within the cannabis market, when it comes to the new view of the crop as a large-scale commercial farming product, is a risk of losing sight of the medicinal benefits of the plant.
“You can never forget that neither wine nor tomatoes, they aren’t able to make a difference to a critical illness. And I think what we are missing from all of our dialogue and all of this commercial expansion is, because [cannabis] is yet to be de-scheduled [as a Food and Drug Administration controlled substance with no medicinal value], we aren’t receiving the [research] data.”
While cultivators embrace the new era of cannabis consumption and normalization, it doesn’t necessarily mean they are no longer facing challenges. Ward-Horton reveals that many issues growers are currently grappling with have to do with managing and transporting a product that was once illegal: “There is major risk. [Cannabis producers] need to manage across state lines, and they haven’t been doing that before. In the beginning, [cannabis transportation] wasn’t the norm, and now it is becoming the norm. They are asking themselves, ‘How do I combine my data across these multiple states with multiple compliance rules? How to I keep up with this?’”
Another problem cultivators face as they attempt to scale up is the glaring lack of industry-specific business management systems in place. “You need a software that is built around compliance,” Ward-Horton explains. “Businesses need their data in a way that communicates business planning. They need to budget, plan what their revenues are going to be, budget the sales accordingly, and forecast on what they plan to plant, how much they need to order to support the plants they plan to grow. They need to plan their organization in a connected way, and they don’t yet have that functionality.”
Stressing that this particular issue is a “really common” complaint among cannabis business owners, Ward-Horton says this problem is “unique” to the industry: “These businesses are profitable and they are successful. But they are managing by writing on a whiteboard and they might have a notebook they can look back on in a year. It feels very Farmers’ Almanac, but that is just how people do it.
“And the industry has grown so fast,” she continues. “It’s not that cultivators don’t see a better way, but the businesses are growing so fast and they are starting to hit breaking point.”
A popular yet impractical way of conducting business and management tasks that Ward-Horton has noticed is the use of Google Sheets. “You hear that a lot. But you just can’t run a multimillion-dollar operation through Google Sheets. I am talking about the version that is free on the web. It is not sustainable and you start to get crushed under the weight of that. It starts to feel like a lot of IT and admin. Business owners simply have to invest in [a workable cannabis business management program].”
For cultivators, it is all about managing mindset, numbers and expectations as they expand their grow op — how many pounds will plants produce based on what they have produced in the past? Cultivation is now all about being mathematical and running a business based on real data, rather than simply having a green thumb and hoping for the best. “As your cultivation business grows,” Ward-Horton explains, “you are not managing just one garage, because that was what you had when you weren’t legal. But now you are legal, so you’ll likely have a number of facilities.”
It is no surprise then that those in the know are now saying cannabis has become all about statistics rather than love for the plant. Market research company Grand View Research estimates that in seven years, by the year 2025, the global legal cannabis industry will be worth a staggering $146 billion. More conservative estimations peg the US cannabis industry at $22 billion by the year 2022.
According to Matt June-Wells, Ph.D., founder of laboratory and revenue consulting firm Sativum Consulting Group, this change is creating a market that is complex yet contradictory.
“What this means is, as this market changes, there will be significant competition in the near future,” June-Wells said while addressing an audience at MJBizCon in Las Vegas. “Overall, marijuana is very easy to grow in bulk; the quality might be a different question. It grows fairly rapidly and there are multiple ways to do it. [But] over the past year, there has been a 20 percent reduction across the board in all types of flower.”
Referring to the “good old days,” when a small-scale, at-home grower could reap $3,500 for the entire harvest, June-Wells added, “Those days have left us. We are now moving into a time of large industry, which is a good thing. We can start taking advantage of the markets that do exist and that have been unexploited. We are beyond the times of growing marijuana for big money. Most producers have to provide value-added products. This comes from the diffusion lines. But the problem with that is they need significant capital.”
June-Wells, who specializes in cultivator-specific business-scale models, says growers have to understand the financial repercussions of their grow cycle: “What technique are you using [to grow] — indoor, outdoor or greenhouse? The production value varies. The quality of growth is higher with outdoor. You also need to know the size of the grow — how are you going to break that grow up into units? How many cycles per unit? And the estimated period for each plant? Then, look at the individual output per unit.”
Growers should be looking at every part of the cultivation cycle in minute detail in order to maximize their profit.
“Will you be offering flower as part of the output?” asks June-Wells. “What about manufacturing, for example, and the different technologies for extraction?”
Cultivators need to start seeing their product as a brand and decide if they are going to take a commodities approach to their business. “These are all questions you need to ask before you even start the company,” June-Wells advises. “You need to look at the framework — what type of grow are you planning? Understanding how to get the grow to your final product, and selecting the infrastructure to do so. You need to unite your grow with your final product. Do you have 10,000 square meters [2.5 acres] in which to cultivate? What is your cropping block? The type of grow you are doing should have suitable estimates for each plant. Is it going to be full extraction or a portion of the flower?”
June-Wells suggests business owners envisage the end of the grow and production process to gain clarity on how the middle will look. “It seems strange, but in actuality you need to know what kind of grow you are trying to build. The second question to ask is, what does your product look like? The purpose of this is to identify your target market, and for you to streamline your manufacturing.”
Finally, in order to successfully scale your cultivation business, June-Wells advocates for embracing technology.
“Each type of extraction technology has advantages and disadvantages,” he explains. “Once you have decided what you are going to grow and what you are going to do with it, you can make an educated selection of technology.
“Anyone with a big checkbook can go out and buy whatever the hell they want, but if they don’t have a directed idea of what they want to buy and when they want to buy it, they are just wasting money.”