Get the info you need to decide if you want to open a business that cultivates, sells or handles marijuana, or if you’d rather open an auxiliary business, like a software company or advisory firm.
May 9, 2018 6 min read
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If, after considering all of these elements, you’ve decided you want to start a cannabis business, you’ll be faced with another big decision: picking a side, so to speak.
Do you want to touch the plant? Or not?
One would assume that businesses touching the plant bring higher risk and, thus, higher rewards. However, this isn’t always the case.
Risk is naturally higher when a business cultivates, sells or even handles marijuana — and so are the complexity and rigidity of the regulations that apply to it. However, returns aren’t always directly proportionate to this risk. In fact, many plant-touching subsectors of the industry, like wholesale cultivation and edibles manufacturing, face problems like shrinking margins, increasing competition, and difficulty in scaling up. Growing such businesses usually requires a lot of capital, real estate investments, new employees and time.
That said, entrepreneurs need to remember that there’s no cannabis industry without cannabis production. It’s also vital to realize that plant-touching businesses aren’t limited to cultivation and retail. For instance, there are businesses that create cannabis-infused foods, clean or wash cannabis flowers or offer retail cannabis delivery.
Still, you might continue to wonder about the incentives for going with a plant-touching business. Well, whiskey might help you decide.
In other words, we haven’t seen the Jim Beams, Jack Daniels and Johnny Walkers of the cannabis industry emerge yet. You could fill one of those spots — be the first to create a legacy product or brand. “Whether they’re medical or recreational, there are very few brands that cross state lines nowadays,” says Tyler Stratford, director of client operations at cannabis advisory firm Canna Advisors. “So, there’s a real opportunity to create a great national, and even international, brand.
“On the operations side,” he adds, “touching the plant might be the shortest way to making money and not remaining in debt over a long time.”
On the other hand, businesses that don’t touch the plant often offer reduced risk and the potential for higher rewards. Think about scaling up a software company or advisory firm: It’s often easier to grow and get into multiple states with these sorts of companies than it is to increase the size of a grow operation or retail location. Once the product or service is created and polished, your main job will be to grow your client base and distribution capabilities.
While the path for a business that won’t touch the plant might seem easier at first, starting such a business often requires a certain level of technical and/or technological knowledge and a relatively large amount of seed capital. But, this doesn’t mean that non-expert entrepreneurs should shy away from this sector, as there are plenty of nontechnical opportunities in consumption devices, physical security, marketing, public relations, event planning, media, etc.
Actually, if you’re looking to start a business in a more mature market, meaning in a state that did not legalize cannabis very recently, the ancillary side of the industry might provide more opportunities. “All you have to figure out is what problems exist,” Canna Advisors’ cofounder Diane Czarkowski notes. “On the other hand, in a brand-new market, direct operators are the first to open [a business], and then it takes a little while until there is really a demand for some of those ancillary businesses, with the exception being those you’d really need at the very beginning to help the businesses run, like a security firm, record keeping or even delivery services for moving product from one place to another.”
Picking a subsector
There are many subsectors in the marijuana industry. A clear categorization is the one used by Viridian Capital Advisors, which suggests dividing the space into 12 segments:
- Agricultural technology
- Biotechnology and pharmaceuticals
- Consulting services
- Consumption devices
- Cultivation and retail
- Infused products and extracts
- Investments and mergers and acquisitions
- Miscellaneous ancillary products and services
- Physical security
- Real estate
- Software and media
Some of these sectors require a lot of technical or technological knowledge and plenty of capital. For budding entrepreneurs, it’s probably wise to focus on the most accessible ones: consulting services, cultivation, retail, hemp, infused products, extracts, physical security and other ancillary products and services.
However, this is an industry with open doors, receptive to anyone with good intentions and a heart in the right place. “You might not have the route that some groups and big-money people have, but everyone can find a niche, something that works for them,” says Andrew Pitsicalis, CEO and president of Purple Haze Properties, a celebrity licensing company, arguing that people can do a lot of things around cannabis, from making edibles or growing actual flowers to packaging, public relations, graphic design, marketing and ancillary products like rolling papers.
“Just like any other industry, the cannabis industry offers an enormous range of different opportunities for people to play in — from customer service jobs all the way up to concierge services and event companies,” Green Flower Media founder and CEO Max Simon concurs. “So what I’d recommend people do is find the place where they already have existing skills, an existing background, existing experience. People get excited about growing or making products, but it’s best to stay away from these areas if they don’t have any experience in this field.”