People ask us at Backcross all the time, should I get into cannabis or not? The short answer is you should be thinking about it. It’s a once and a lifetime opportunity to join a wonderful industry that is growing fast, with no end in sight. BUT cannabis is not for everyone and there is much you should know before rushing in. This article is just the start. If you’re even thinking about entering the cannabis industry, to start a business, work for a business or invest in Cannabis, here are the five things that you should consider.
How much will it cost me to enter the Cannabis Industry?
The first thing anybody starting or investing in a cannabis company really has to understand is the capital intensiveness of the industry. It’s very expensive and the capital requirement to get started presents a very large barrier to entry for most. I should clarify that, to do anything right, it’s a very capital intensive process. You can throw money at anything. The biggest obstacle is cannabis companies don’t yet have access to mainstream financing. You can’t go to a bank and get a credit line for a mortgage or conventional mortgage. That means cash is king and be prepared to spend.
Is Cannabis a goldmine?
Next, it’s not as lucrative as one would think it is unless you do it right. There are a lot of people investing in cannabis because they think it’s a goldmine – and it can be – but it’s not so simple. Most people are investing in a dispensary, taking a fractional ownership in one dispensary or maybe two dispensaries. When all is said and done, the profits aren’t that great for investors who get in at this level relative to the cash risk. Plus, you may have ten investors in one store and when it pays out, it’s not that profitable. Once again, the reason it is hard, because it’s so capital intensive. You can’t invest in one store, luck into a concept that works and then go borrow money to fund growth. Or at least, you can’t do that today. It’s not federally legal. There are some institutional lenders for this industry, and we know many of them, but at the end of the day, it’s not that easy to borrow money so growth must be funded by sales, which means money needs to flow back into the business and investors don’t see the returns early on.
Is it easy to get into the Cannabis Industry?
The third overlooked data point is that simply getting started in Cannabis as an investor or proprietor looks and sounds easier than it is. The process is extremely political to get licenses. It’s bureaucratic. It’s a pain in the ass. It’s a highly regulated business that has not yet found its regulatory stride. It has not yet sorted all the regulations out. States, including MI which is one of the best for cannabis, are figuring this out on the fly. The bigger companies or the companies that are doing it the right way, the legal way,,, are frustrated because the regulations that are out there are often not enforced on illegal grows or for caregivers. I don’t know the exact number, but there are a high number of legal businesses so if you want to do it the right way, which is the only course we suggest, you will be competing with rule breakers.This is because it’s a new industry. There’s not a mechanism to enforce it. And the other thing is there’s too many licenses. Let’s say there’s 2500 licenses right now in the state of Michigan. Think about how hard it is to enforce regulations on 2500 licenses. It’s different if you’re a gaming Commission and you only have four licensed casinos in the state of Michigan. With 4, it’s a lot easier to enforce all the laws.
Is there a downside to the Cannabis Industry?
Here is the silver lining, from an employee standpoint, I don’t see the downside of working with a blue chip Cannabis company like Lume, for example. What’s the downside of working at a dispensary or in a fast growing industry with a great company? You make great money, are dealing with happy people, and you’re not getting yelled at. People come in, they know what they want. And you’re not just making great money, you have unbelievable benefits. You get discounts on cannabis – if you like it. Employees at companies like Lume that are in their infancy are similar to what you might see if you started at Starbucks in their early days. You can even get equity and an even better opportunity to rise – to move from retail employee to manager, to opening stores – the sky’s the limit. It’s a career path.
What do I need to enter the Cannabis Industry?
Lastly, there is a secondary employment and business market with incredible opportunity in working for a company like Backcross. We provide IT to this industry and the need for IT procurement and support is booming. The examples and opportunities for businesses like ours are endless. Think about the supply chain of the industry. You need lighting equipment and you need watering equipment, and you need minerals for the plants, and you need packaging and you need cardboard boxes, you need plastics and you need machines to package, you need cans for beverages, you need all of the contractors that need to work. You need services, you need accounting services, you need legal services, you need IT services. It’s endless. It is an exciting industry that is new and growing fast and the time is now to get in at the ground level.
Backcross Solutions has an IT consultant package for dispensaries where we come in, we give you advice on how to set it up, and then you can either do it yourself or let us do it. We can give you a cost for us to do it or you try to do it yourself. Regardless, we are here to help you navigate these important decisions. Backcross offers a free Alignment call for businesses looking to assess fit. To learn more about our process check out our services page and our resources page for all things cannabis IT related. We hope this article has been helpful. Best of luck!