This year marked another turning point for the cannabis industry, and the opportunities that lie ahead could be significant for many growers. The most notable headline of 2016 was the election, with eight states passing legalization measures. Adult-use legislation was passed in California, Maine, Massachusetts and Nevada, while medical marijuana measures passed in Arkansas, Florida, Montana and North Dakota. The election is a clear indication that the national sentiment regarding marijuana use has changed drastically, as is the result of an October 2016 Gallup poll finding that 60 percent of Americans now support marijuana legalization.
For the cannabis industry, 2016 has been a year of growth, learning and maturity. Many cultivators and processors realized great successes over the past year, but there is no shortage of lessons to be learned.
In this industry outlook, we’re applying some of the learning experiences from 2016 to prepare you for success in 2017 and beyond.
2016: Key Lessons Learned
Planning for growth doesn’t guarantee it. Many commercial cultivators who entered the cannabis industry with plans of growing twofold, threefold or even fourfold were disappointed to learn larger facilities with greater staffing requirements don’t grow as easily as smaller, nimbler operations. Larger cannabis operations require more foresight and resources for continued growth, and bigger businesses often mean bigger problems. In 2016, many inexperienced investors and cultivators failed because they became overly optimistic about their success in the market and fell victim to inaccurate financial projections.
Additionally, a slew of regulatory changes impacted thousands of cannabis businesses in markets nationwide. These changes impact how cannabis is tracked, packaged, distributed and tested. For some cultivators, this means re-examining and modifying every aspect of their operations to stay compliant. Well-structured cannabis businesses were able to accommodate new changes, while less-dynamic and reactive operations struggled, closed or sold their businesses.
Another challenge growers continue to contend with is a lack of in-house business expertise. “Master grower” does not mean “master businessperson.” Aristotle believed that people should perform work they can naturally master, without being shoehorned into something not suitable for their skill set. Too many master growers who’ve had success in cultivation have adopted business responsibilities, which hasn’t always translated into financial success. Many growers who have moved into key decision-making roles lack the business acumen to handle complex legal and financial requirements.
Some growers also struggled to plan, fund and prepare to scale infrastructure. Many cultivators who lacked building design, automation and key management knowledge were forced to halt their growth plans in 2016.
On a more positive note, the stringent pesticide testing requirements enacted in many newer cannabis markets will bring a safer, more predictable and consistent product to consumers. These measures give growers confidence that their products don’t contain harmful toxins, reducing their risk to recalls that could damage their brands and businesses.
7 Keys to Success in 2017
Armed with the wisdom that only experience can provide, the cannabis industry is poised to reach a new level of professionalism and care for the consumer. As we look to 2017 with our sights set on growth and profit, here are a few things to consider:
1. Learn from growers with the right experience.
Up-and-coming cultivators should take the time to learn the nuances of the industry they’re helping to develop. Talking to successful growers is a good place to start. Reading industry publications and attending conferences are other options for gathering information. Partnering with the right strategic advisers can help with this as well. Consultants can help by providing the bulk of the market research growers need to understand their industry. However, growers should be cautious to ensure they’re working with the most reputable consultants. Ask for and check references.
2. Don’t exceed your expertise or let others exceed theirs.
Likewise, when it comes to cultivation and business, too many operations allow uncertified “Master Growers” to influence the trajectory of the business when they’re not qualified to do anything beyond growing marijuana. While some cultivators may have a business background, for those who don’t: The business side should be run by businesspeople, and the growing side should be run by growers. While the opinions and expertise of all your high-level people need to be taken into account, make sure people stay in their respective lanes.
3. The only constant is change.
Don’t assume that benchmark wholesale cannabis pricing is going to be stable. While 100-percent forecast accuracy isn’t possible, it's safe to assume the industry won’t stay flat. Don’t plan on spot prices hitting $2,000 per pound every week. Consider how you would to manage your operations if and when prices drop to $1,000 per pound or even lower. As the saying goes, hope for the best, but prepare for the worst.
Also, regulations are prone to change on a dime. With new tracking requirements, sanitation rules and testing requirements, to name just a few, compliance has become a major issue for otherwise successful growers. Now many are stuck with huge inventories of noncompliant product, and a few have even lost entire harvests. The solution: Plan beforehand and stay up-to-date with current regulations.
4. Plan for funding challenges.
As previously mentioned, the most common mistake made by new entrants to the industry is not acquiring the funding required to sustain their cultivation businesses beyond just construction and commissioning. Failsafe measures must be in place for price swings, regulation changes, marketing strategy modifications and investor defection, among a host of other possible hindrances. When it comes to funding for new cannabis ventures, there is no such thing as having an approach that is too conservative when it comes to potential revenue, nor one that over-estimates potential costs.
5. “You’re never too old to grow up,”
says British author and novelist Shirley Conran. The same holds true for the cannabis industry. Some of you know this, but for those who don’t: It’s time to grow up and focus on operating like mature, responsible professionals. Gone are the days of the “lazy stoner” industry stereotype. Gone, too, are the substandard, mediocre levels of customer service that plagued the industry during its earlier days. And good riddance to both.
Frankly, the industry can’t afford to operate like the law requires without paying strict attention to protocols, patient/customer safety and regulatory compliance. Growers will need to be self-disciplined and smart to maximize and sustain their success. There are too many unprofessional cultivators and business owners in this industry, and they will be forced out by better practices and those using better cultivation methods.
6. The right thing done the wrong way is still wrong.
There are many growers running their operations the wrong way, such as not utilizing supply chain management for product procurement or utilizing fungicides to target and kill insects in a “spray and pray” approach vs. utilizing the right and approved pesticide for the task at hand, and they will be forced out by necessity. Learn from them. Don’t be the next example of a business that failed to anticipate a significant regulatory change or new testing requirement. Stay ahead of the curve by being vigilant and always on the lookout for what changes might be forthcoming.
7. Scale or shut down.
Industry research firm Cannabis Benchmarks indicated in a recent report that the average spot price per pound for cannabis in major markets, such as California, Washington and Colorado, saw a steady quarter-over-quarter decline for most of 2016. Because this trend will likely continue, cultivators who can’t scale their businesses to adapt to ongoing price drops will struggle to keep their doors open.
Producers who look to automate their facilities, stay on the cusp of innovation, and those who seek out expert training and/or professional business services to streamline not only their cultivation operations, but their entire business administration are the most likely to thrive in current and future markets.
Cultivators looking to make a quick buck in this business shouldn’t presume that it’s going to be easy — and it certainly isn’t going to be quick. Benjamin Franklin said, “An ounce of prevention is worth a pound of cure,” and taking the time to plan out what to expect this year may mean the difference between success and failure. In the cannabis industry, and ounce of prevention can equal “tons of cure” if implemented correctly.
That being said, with the right focus, 2017 may just be another record year for the industry and for cultivators who are smart and quickly adapting to market shifts and regulations. Use these guidelines and precautionary principles to minimize your growing pains and to continue moving your business, and this industry, forward.