Colorado cannabis businesses share what they’ve learned since legalization
In the past five years, Colorado’s cannabis executives—both plant-touching and ancillary—have learned enough about doing business in a new recreational market to write textbooks on the topic.
The Centennial State made history when it launched the world’s first adult-use marijuana market on Jan. 1, 2014.
Along the way, the state’s marijuana pioneers have experienced plenty of growing pains, lessons that can be applied to other emerging adult-use markets.
Marijuana Business Magazine surveyed more than a dozen Colorado cannabis business owners to pick their brains and glean insights into their five-year education.
“What we have experienced in Colorado holds true in other states as well,” said Diane Czarkowski, founding partner at Canna Advisors, a cannabis consultancy in Boulder. “As one of the first businesses to open in a new market, you have to accept your responsibility to be involved in the development of the industry.”
Here are four pieces of advice for entrepreneurs looking to launch a cannabis business in a new recreational market.
1. Seek out a seasoned veteran and bone up on the regulations—ahead of time.
While in the early stages of building a cannabis company, it’s crucial to conduct as much research as possible, including consulting with established professionals.
Brad Nattrass, CEO of Colorado cultivation equipment company Urban-Gro, advises industry newcomers to incorporate the lessons learned from cannabis veterans to advance their own company’s goals.
“Seek resources with experience to help you avoid making mistakes,” he added. “Ask questions. Ask for help. You don’t have to re-create the wheel.”
New marijuana markets typically have limited licenses and stiff competition, so new business leaders will want all the possible arrows in their quiver before they begin. This could include someone on your team with experience working in an established licensed cannabis market as well as a legal professional who can help you read and understand complicated business documents.
“To win a license and compete in your market, it is imperative to have the required business acumen, passion and industry expertise on your team,” said Andy Williams, co-founder of Medicine Man, a Denver-based vertically integrated cannabis company.
And don’t forget to read the fine print, advised Kristi Kelly, executive director of the Marijuana Industry Group, a trade association. When you’re signing a contract, for example, you don’t want to have any surprises pop up down the road.
“This is an industry where details matter,” she said.
Genifer Murray, strategic business development for Drug Plastics and Glass in Denver, strongly re-emphasized that sentiment.
“Do your research. Then do more,” she said. “Then do it again. You don’t know how much you don’t know.”
Many business owners are surprised when they are hit with unexpected issues that could have been anticipated, including zoning ordinances, restrictions on advertising and mandated tracking and handling of products.
“However, all of these issues are spelled out in the regulations, if you take the time to read and understand them,” Murray said.
She added that the cannabis market is now flooded with products, and competition is fierce.
“So, take the time to understand the market before you jump in,” Murray said. “Sound business practices are your best chance at success.”
2. Stay focused on your goals and the tasks you’re specialized in—and hire staffers to handle those areas outside your comfort zone.
While developing your company, avoid succumbing to shiny-object syndrome, where you chase after every new trend and fad. Just because people are buying one type of edible today doesn’t mean they’ll be buying it tomorrow. The same goes for strains of flower or flavors of vape cartridges.
“Set your own goals and pace,” said Scott Reach, founder of Rare Dankness, a cannabis genetics and cultivation company established in Denver in 2010. “Focus on the road ahead. Lost time is lost money.”
For Tim Cullen, CEO of Denver-based Colorado Harvest, a key challenge in running his vertically integrated company is the constant opportunity to improve in all areas—from marketing to merchandising to customer service and many others.
“Find your focus, do your thing, hire out the rest of it,” he said. “You cannot do everything. Keep repeating that until you believe it.”
For Cullen, his passion was plant production. He was comfortable in the garden, but there were other aspects of the business he knew very little about.
“Bookkeeping was an area I knew was important, but I decided I could save a few bucks and do it myself on the cheap,” Cullen said. “In hindsight, this was a rookie move. (After mucking up the books), I had to bring in professionals to sort it out at a much higher cost than a part-time bookkeeper ever would have been.”
He’s found that same logic to be true about marketing, merchandizing, legal, compliance and other areas.
“I now view my position as more of a coordinator of a wide variety of specialized folks that work with me to create an outstanding experience for our customers,” Cullen said. “I could never have accomplished that alone.”
3. Be a stickler about complying with the laws and regulations.
One of the surest ways to sink your company is to get on the wrong side of regulators. That’s why several Colorado industry insiders emphasize the importance of crossing your t’s and dotting your i’s.
Bob Eschino, the founder of Denver-based Medically Correct, which makes the popular Incredibles line of infused candy bars, said his job is to take care of his company, and that means following the law.
“If you’re not compliant, you don’t have a company,” he added.
When it comes to business owners in emerging markets, Kyle Sherman, CEO of Denver-based cannabis software company Flowhub, advises business owners against trying to interpret laws themselves.
“Make compliance a part of your business from Day One,” he said. “It’s absolutely critical to meet regulatory standards.”
To do that, he recommends retail store owners build and document tight standard operating procedures for their employees and all those up and down the company’s supply chain.
“Operators shouldn’t rely on one compliance person,” he added. “Instead, they should instill it throughout the company culturally.”
Denver-based cannabis attorney Rachel Gillette, who often helps clients with compliance-related issues, points out that running a marijuana company isn’t the same as running other types of businesses.
“Everything business owners do has a regulatory overlay,” she said.
Even traditional tasks such as setting up banking services is a minefield of challenges for a marijuana business given the federal government’s MJ prohibition.
4. Build your brand by focusing on your strengths and developing a unique product.
To set yourself apart in a crowded field, your product-based company will live or die on the strength of its brand.
Nancy Whiteman, founder and CEO of Boulder-based Wana Brands, suggests finding a product category in which you can excel—but don’t try to cover too much ground.
“First-mover advantage is real, but you still have to have a great product to succeed,” she said. “Make your brand stand for something.”
Whiteman wanted Wana to be associated with quality and consistency. So, she had her lab test every batch of tincture so the company could dose its products precisely.
“It really started our reputation for having products that are always consistent,” she added.
Wana also hired a full-time training specialist and developed a range of training programs for budtenders and the general public to ensure the company was providing high-quality educational information.
Peter Barsoom, CEO of Denver-based edibles company 1906, suggests creating a product that is new and different to the current marketplace. 1906, for example, offers cannabis-infused peanut butter cups.
“I would encourage people getting into developing industries to define your focus early on,” he added. “Then do it really, really well.”
1906 focused on quality and predictable effects with its edibles from the outset. It also branded its products as “fast-acting,” which helped to define the direction of the company’s offerings from the get-go.
For Lloyd Meador, co-founder of Boulder-based infused product company Marqaha, research can lead to good results for building your brand.
“Learn everything you can in order to create a product line with a purpose,” he said. “Focus on formulations that are unique to your brand’s vision.”
A Time Machine Set for 2014
Picture yourself back on Jan. 1, 2014. Now imagine Colorado’s cannabis business owners of today were there with you.
What have they learned in the past five years, and what would they do differently? That’s what Marijuana Business Magazine asked several executives of cannabis companies, both plant-touching and ancillary. Here’s a sampling of their answers:
Nancy Whiteman CEO of Wana Brands, Boulder: Don’t ignore your gut reactions about people and partnerships. My worst decisions have been when I saw red flags but rationalized them away and moved forward. Strike a good balance between maintaining a sense of urgency and being thoughtful and deliberate about your strategies.
Tim Cullen CEO of Colorado Harvest, Denver: Over the years, there would be many things I would tell myself not to do again, but the most important is to keep the stress in check and focus on the big picture. The good people of Colorado voted to legalize marijuana, and it’s easy to get lost in the weeds with the day-to-day challenges—from banking, to raising capital to IRS audits to city and state rule changes. What I no longer do is worry that there is any issue we can’t overcome. I know that with the correct amount of time and effort, any issue we face can become an opportunity for us to grow into a more mature company that is better equipped to face the future.
Wanda JameS Owner of Simply Pure, Denver: Don’t focus on Colorado only—or focus on only one state. The cannabis industry is global; you must stay focused on all markets if you’re going to be successful. Unfortunately, Colorado has become the least profitable for new businesses. Keeping your brand growing in new markets is the key.
Peter Barsoom CEO of 1906 edibles, Denver: If there is one thing I would go back and change, we would have started competing for licenses in East Coast limited-license states much earlier. We believe we will be seeing more innovation and growth coming from the East Coast—eventually surpassing West Coast markets.
Andy Williams Co-founder of Medicine Man, Denver: We have seen wholesale prices of cannabis fall from a high of about $3,500 per pound in 2010 to $600-$800 per pound in 2018. As cannabis becomes a commodity, the value of a company is more dependent upon brands and products. In 2017 we started a marijuana infused product facility, Medpharm, that is performing extraordinarily and is now also the first marijuana licensee in the country to also have a research license. We would have been well served to begin this company earlier to help our overall business valuation, to begin work establishing our brands and products and to be even more competitive on the retail front with the cost savings we achieved by supplying some of our own products other than just flower.
Kyle Sherman CEO of Flowhub, Denver: It can be tempting to chase every opportunity with so much potential and low-hanging fruit in the cannabis space. Early on, we tried to solve a multitude of problems with little resources. If I could go back, I’d tell myself to focus on solving one problem at a time. When you try to do it all, you become distracted. It’s better to be the best at one thing with a clear sense of your intention and the value you provide to customers.
John and Amy Andrle Co-owners of L’Eagle, Denver: We have always insisted on not having any partners or investors. Over the years, we’ve learned that if L’Eagle is going to compete with cannabis global elites, we’re going to need outside help.
Julie Dooley President of Julie’s Natural Edibles, Denver: Ten years ago, I would have told myself to automate as fast as possible rather than hiring a big team. And get everything in writing!
John Lord Owner of LivWell Enlightened Health, Denver: We would have been more proactive in advocating for the creation of a more expansive and inclusive ownership structure, the social impacts created by initial regulatory systems the Cole Memo was intended to obviate, such as more reasonable background-check requirements, fewer disqualifying criminal convictions, and other changes that would have lessened the barriers into the industry for minorities and women.