A first impression is crucial in networking. It’s that much more when it comes to launching a business. This is especially true for cannabis processors and others in the rapidly growing cannabis space. Making the correct steps the first time allows your business to spend less on overhead while hitting the ground running towards its goals. That said, not every venture does this. Whatever the reason, many startup business problems can often be avoided with proper planning prior to opening up for business.
Our team here at Pure Cannalabs is equipped to help all sorts of cannabis companies, both large and small, no matter its development stage. Josh Rutherford, who is one of our owners and our Cultivation and Extraction Consultant, shared his insights on the vital steps a company must address to succeed in today’s cannabis market out of the gate.
Which State Should Your Cannabis Lab Go?
A lack of federal reform leaves marijuana laws in the hands of the states. As such, the United States has a variety of rules depending on each state’s medical cannabis and adult use marijuana laws. With a patchwork of laws in place, Rutherford stresses the importance of understanding the regulations well before, and during the development process. He explained that “You want to first look at the regulations on ownership structure.” This includes looking at the local level. “A lot of counties will have different regulations than the state,” Rutherford advised. This will help you understand what is allowed and what isn’t, with requirements of in-state residency or partial ownership coming from an in-state resident being a frequent stipulation.
Once state and local regulations help trim the list down to the locations you feel would best suit your goals, hopeful ventures should analyze critical market data. Rutherford says to focus on the number of licenses operating in the space to determine if the supply chain has room for another player. From there, patient and recreational count of active participants can be used to determine market size and SKU demand. While it is always possible to enter a crowded, mature cannabis market and be successful (such as in Colorado, California, and others), often new cannabis business owners will benefit from starting in a smaller or upcoming market instead.
Choosing the Right Operational Size of Your Processing Lab (or Otherwise)
“You always want to set up your business to scale,” emphasized Rutherford. The consultant explained that the rule applies across the board for operators. Regardless of the business, each venture must have adequate square footage to conduct business.
For labs, Rutherford recommends businesses conducting in manufacturing or infused products work with at least 1,500 square feet of space. Grow operations need to double that size, at least, using a recommended 3,000 square-feet. Brick and mortar operators should look for somewhere in the middle of the two mentioned sectors, with a 2,000-square-foot space being ideal. SKUs will also factor into your area need calculations. Depending on the type of equipment used, businesses could require substantially more square footage in some cases, especially if they intend to be a high volume processor at a single location.
With several factors to consider, decisions must be committed to for space requirements fairly early on. When Rutherford was starting up his own lab, Kush Masters, he focused the company around extraction, seeking processing space first and foremost. Using only a 1,200-square-foot facility, he saw an opportunity on the acre of land he ultimately decided to start with. If needed, he could add another floor to the building or expand in other avenues on the site. Rutherford mapped out the business’s lab options for years down the line by taking these proactive steps. “Mapping things out is a lifesaver,” he said of those plans. Kush Masters has gone on to become one of Colorado’s top extraction labs, having won multiple awards in local competitions for a variety of their products.
Obtain the Needed Licenses
Compliance is always crucial. When laying out the options for the business and its workspace, regulations come into play often, and change just as frequently it seems. There is quite a bit of juggling just in terms of SOPs to regulatory compliance to licensing. Having the needed documentation from the state and city are crucial to remaining compliant and in operation. Any new business owner looking to get started in cannabis must be prepared to deal with the shifting landscape of compliance and to become a student of regulations to save cost and stay on top of changes that will affect their business’s ability to operate.
As Rutherford highlighted earlier, state and municipal regulations may not align all the time. Zoning often presents various interpretations, with one town saying a cannabis lab can go in a particular part of town, while the neighboring municipality won’t have it. While you can go at it alone, it would be wise for a business to invest in professional guidance to ensure that no compliance errors sink an otherwise sound company.
Obtain the Adequate Sized Building
You’ve already determined the scale and the size of your building. Now comes the acquisition of the space. For some, this means renting. If financially feasible, buying the property may be ideal, Rutherford said. “If you have the money and ability, I would say owning makes things that much easier,” he added.
Owning the space helps companies when determining to modify the space. Businesses that own their area won’t need to clear hurdles, like getting the approval of a landlord. For those unable to buy, Rutherford suggests seeking a longer-term lease — ideally for five-years. “I wouldn’t start a cannabis business with less than [a five-year lease].” A lengthier lease should benefit the business for a few reasons, he explained. Licensing could take a year, already shaving 20% of a five-year contract off. The fraction only goes up on shorter leases, giving the business less time to become profitable. A longer lease commitment can also help you negotiate a better rate. In his agreement, Rutherford has a five-year lease that contains an additional five-year increase clause.
Plan Your Products and Brand
With the market data and space in hand, a company needs to wrap their head around how it can establish its brand in the crowded cannabis extraction market or elsewhere. The rules apply to ventures of all sizes. Every company must determine what they stand for and how that is conveyed. As data indicates from MJBiz’s indispensable annual Factbook, a variety of SKUs are key to market success. Having numerous SKUs in the high-single to low-double digits appears to be the sweet spot for becoming profitable, according to self-reported data from processing facilities across the country. Around those products has to be the brand, from the packaging to the product consistency.
Rutherford explained how variety could turn an early dispensary or distribution buyer into a returning customer willing to spend more. “One order with three SKUs turns into one order with six SKUs — same person, same company,” he said of establishing return customers through a variety of consistent products. Choosing the right SKUs comes during the due diligence process. Part of the due diligence process includes the capabilities of producing such products in your workspace as well as the budget required to operate it. “The budget and the scale of your business are completely intertwined,” Rutherford pointed out.
That said, even when choosing the right SKUs, don’t expect profits to come quick. Cannabis is and will continue to be a long-term investment, and most processing labs require at least one to two years to break even.
Have the Correct Floorplan, Equipment and Team
With everything else in place, the company has to layout the business and install the right team, as well as the right equipment, to bring it all online.
Choosing the correct cannabis extraction equipment boils down to space and the SKUs that will need to be created. While having the needed equipment in place is ideal right away, the layout is often a bit more fluid as demand grows. Rutherford mentioned changing his company’s floorplan at least 20 times over the past few years in a bid to find the most efficient process. He calls the layout “a constant evolution” and suggests that business owners should not be afraid to make compliant changes if they see potential value.
That said, he stresses that the layout should not be overlooked. He mentioned how Colorado regulations require approval before changing the business layout. As such, it is vital the company plans out the changes carefully before simply moving things around.
Making the correct operational steps is not always easy, but taking the proper time to do so can make a major difference in long term success. The owner must hire the right staff to set up and run the business. Like a faulty piece of equipment or an ill-fitting layout, the wrong employee could upend the process. Make sure workers are passionate and informed about the work they are applying to do.
Staffing also includes professional consultants to get you up to speed. The Pure Cannalabs team, including Josh Rutherford, are here to help get your venture to where it aims to be. Contact us today to discuss starting your business off on the right foot, or helping address any pain points it encounters along the way.