Capitalizing on Downtime

Entrepreneurs can use delays in new marijuana markets to their advantage

by Bart Schaneman

A delay in the launch of a new marijuana market doesn’t have to cripple your business.

Quite the contrary: If you plan accordingly and use the time wisely, it can be an opportunity to research, prepare and educate yourself about the ins and outs of your company and the market. You can also use the downtime to develop a clear vision for your business’ future.

It’s a good idea to plan ahead for the possibility of setbacks, as a growing number of new markets — from Massachusetts to Hawaii — have rolled out more slowly than anticipated due to regulatory, legal and political issues.

Entrepreneurs who overbuild, overstaff and overspend can quickly find themselves struggling to stay afloat. So it’s important to expand your staff and operations slowly in accordance with your financial situation and the market’s actual rollout. And keep your investors informed along the way.

Phoenix-based Giving Tree Wellness Center, which operates two medical cannabis dispensaries, is a case in point.

Co-founder Lilach Power watched some competitors drop out while she waited out a year-long delay in Arizona’s medical marijuana market caused by regulatory issues and legal challenges. She and her team used the time to learn more about the state’s new MMJ industry, which came about after voters approved a ballot initiative in 2010.

“While the market was on hold, we were able to take the time to actually learn the business,” Power said. She also used that period to hone the company’s business plan.

“When (regulators) said, ‘OK, go,’ we were ready to go,” Power said.

Take the Time to Learn and Plan

Power and her business partners used the delay to focus on several fronts.

For starters, they got to know each other from a business standpoint. They also developed their mission and values statements and worked on developing the protocols and procedures needed to comply with the state’s regulations.

In addition, they had more time to discuss whom to hire, and when to bring them on.

“There are so many shapes and forms for licensing and delays, people should take it as a blessing in disguise,” Power said. “Use it to work in every aspect of your business.”

Be Well-Capitalized

If you think it’s going to take a certain period of time for the market to come online, add 20% to that and shore up 20% more money, industry executives advised. That will give you a buffer in case, say, it takes the state and individual cities longer than expected to award licenses or grant necessary approvals.

Karl Keich, who owns the cannabis retail store Pot Stop in Seattle, said every cannabis business owner in a new market should prepare for additional expenses beyond what they initially expect.

“These things do happen,” Keich said. “Failing to prepare is preparing to fail.”

Starting small, growing slowly and keeping a budget are the “right way to do this,” Power said. “You never know how the long the delay is going to be.”

It also could take a lot longer than you thought to climb into the black once your business launches.

People who think they’re going to get rich quick should temper their expectations, said Charlie Bachtell, CEO and co-founder of medical cannabis cultivation and processing company Cresco Labs, based in Illinois.

“This is a business just like any other industry,” he added. “You’ve got to watch costs. The building will always cost more than you think it will to build.”

It’s important to anticipate a market’s gradual growth.

“Programs do not start with 100% patient participation Day One,” Bachtell said. “You will not be profitable Day One. All of your harvests will not be perfect. You will not have 100% buy-in. Being well-capitalized is important.”

Talk With Your Investors

Keich recommends business owners help investors set their expectations properly and explain to them the cannabis market is a long-term play.

Even with that long-term mind-set, there are going to be changes along the way in terms of the political climate, regulations and other factors.

“Everything changes,” he said. “The only thing for sure in this business is change.”

Power recommends being open and communicating with your investors so no one is surprised if things take a little longer than planned.

“Look for investors that are the right ones for you,” she said. Find those who share your vision and will be a good support system, she added.

“If there’s a delay and you’re stressing about it, this is when your investors can be your support system,” Power said. “They could say, ‘Hey, we knew this is going to happen. Let’s all calm down and enjoy this.’”

Staff Slowly and Carefully

“Manpower is probably the most expensive part of our business,” Power said. “It’s always ‘hire the right people,’ but here it’s ‘hire slowly.’”

If you build staff up too quickly and you have a team of growers hired, but you can’t start selling product, “you’re kind of in trouble,” she said.

Keich recommends recruiting workers from existing retail industries, which can provide leeway if there are delays.

If he sees someone at the local shopping mall who provides excellent customer service, for example, he might approach that person and make a job offer contingent on a position becoming available. By recruiting people who are already employed, a business owner can wait until the market is ready to put that person to work.

Consider Other Business Opportunities

One way to build your brand as you wait for a market to come online is to sell ancillary marijuana products. Keich suggested starting a head shop in your retail space to start generating revenue off of your property.

If you’re in cultivation, you could work with another crop until the cannabis market is ready.

“You could grow tomatoes if you have to,” Keich said.

If you think you’re going to need 100,000 square feet, build a 20,000-square-foot cultivation operation and master that first, Power said. It doesn’t cost you as much to maintain the smaller space and can save you incurring large expenses if something does happen.

She also advised that perseverance will pay off and to expect that the big players will likely leave and put their money somewhere else if there’s a delay.

“Remind yourself that it will be positive,” Power said. “This is a great industry, and you have to know that delays will happen. It’s not going to happen the way you want it.”

Bachtell reminds new entrants to the MMJ market to remember why they got into the business.

“Make sure you’re getting into this for the right reasons,” he said. “It’s patients first. It’s increasing someone’s quality of life. It’s developing something within your community that the community can get behind. It’s not to get rich quick. That will not happen.”