Forming a Cannabis Startup
It’s interesting to think of the Cannabis industry being one in which the flood waters are so high, that most new participants are barred from entry. But, such seems to be the case. There are currently 509 retail Cannabis dispensaries, 279 infused product manufacturers, and 720 retail cultivators in the state of Colorado—making the point of entry a difficult one to identify. According to a recent survey from the CDPHE, around 13% of adults 21 and older consume Cannabis in Colorado weekly. Given that companies aren’t able to distribute their products outside of the state, the customer base becomes largely dependent on a tourist population whose sales figures are difficult to predict.
Not an easy start
In order to even begin the process of creating a Cannabis company, there are the licensing fees—around $4000 at a minimum. Beyond those, you need the capital to either rent or own the land you’ll be operating on. The area you’re in must be zoned accordingly and allow for Cannabis businesses to operate. Then, for example, a production facility where goods might be infused could cost anywhere from $100,000 to over $1 million to have set up and begin production. Setting aside, and it’s tough to do, the slew of operating costs to continue running a facility: utilities, distribution, employee salaries, equipment maintenance, legal fees and consultations— an operator becomes tasked with making realistic sales projections based on a market that’s restricted to only the community of Colorado residents. Part of these projections must include the boom in tourists being attracted to Colorado. However, as more states come out with their own Cannabis programs, that tourist dependence will be increasingly difficult to rely on.
The disruptive option
Many people are under the impression that a company like Uber was a disruptive innovator. They certainly changed the marketplace for taxi services, but as this Harvard Business Review points out it was not disruptive innovation. This true idea here becomes increasingly lucrative in the Cannabis space, as the dominant forces within the industry are focused on their largest base of most profitable customers. So by targeting fringe customers who are being overlooked often because they are the least profitable, disruptive ideas have massive potential to still gain a significant foothold. They avoid the attention of incumbent market dominators while allowing opportunity to grow in order to eventually capture market share.
The truth is that starting a business in this industry is incredibly difficult. But as new as it is, and with a population increasingly being made aware of the benefits of Cannabis—it’s poised for even further innovation. Realistically though, starting any business is incredibly difficult. Ancillary models are in some of the best positions as they won’t come in direct contact with the plant. Yet even those that choose to operate in direct contact can realize immense success with a truly unique value proposition and the unwavering dedication to execute it. They also better have a well-developed plan of action including a reliable market analysis (not easy to do in what is still technically an illegal industry), revenue projections, probably the support of local elected officials, and a brand identity that resonates not only with those they begin targeting—but eventually the larger base to whom they want to appeal.