‘Adulting’ in Today’s Cannabis Industry

What exactly is “adulting” in the cannabis industry? One minute you’re dreaming away, inventing the rules as you go, following your bliss (not to mention evolving state regulations) to wherever it may take you. The next, adolescence has flown by and you quickly realize your milieu requires more seasoned acumen than youthful energy.

In the case of those of us in the cannabis industry, this need to mature has crept up on us—and the onus is now on business owners to increase our levels of professionalism so we can be ready for what’s ahead. And that “what’s ahead” is no small thing: according to a report by Verified Market Research, the global legal cannabis market logged in at $25.44 billion in 2021, with an expectation to top $178.77 billion by 2030.

As executives for a vertically integrated cannabis business, we find ourselves revisiting this “adulting” question again and again with each passing year. And so, to help us explore the answer, we spoke to stakeholders with not only deep cannabis industry knowledge, but also with experience in well-established industries outside of the cannabis space. This includes representatives from banking and finance, public relations, and brand and marketing communications, each offering some words of wisdom for those of us who now find ourselves in the proverbial driver’s seat, but who may need some help navigating the road ahead.

Money, Money, Money: Finance and Banking

Sanat Patel, chief lending officer of AVANA Companies, a financial services provider specializing in cannabis, says one of the biggest questions cannabis business leaders need to continuously ask themselves is: “What differentiates your commodity from some other company’s commodity? Part of any commodity business has to be the understanding that margins will eventually be squeezed.”

Federal legalization, with its possible easing of banking restrictions, is not around the corner.

Patel strongly suggests cannabis companies do the following to ensure a company’s long-term survival:

1. Ensure your company has access to capital to see your firm through its buildout phase, including contingencies, and additional capital until you turn cash-flow positive or can raise more capital.

2. Understand, and be able to articulate to others, the customers you are looking to acquire—i.e., adult use versus medical—including basic demographics and competitive market analysis.

3. Hire at least one person on your team with excellent finance skills—including accounting, modeling of cash-flows, and the ability to talk with financial firms. Patel emphasizes that this is crucial.

4. Develop worst-case scenario plans for your firm at both the start-up phase and into the future when you are on your growth path, including not only financial shocks, but also other crises your firm may face. Examples of shocks to your firm may include the market price, particularly of cannabis flower, of your product dropping significantly. It is not unheard of for wholesale flower prices to drop by 50% or more in a matter of months. Also, cannabis distillate prices can drop by up to a third in the same short timeframe. Licensing delays can eat up capital while you wait for approval and are concurrently paying rent on a facility not generating operating income. Other than reputational risk and regulatory risk, most worst-case scenarios in cannabis are financial related. Inflation and gas prices are at record highs as this issue goes to press. These risks can be minimized by raising more capital than you believe you need and not maximizing your business model beyond your capital-generating ability.

5. Secure an openly declared cannabis bank account for your business. This is very important for two main reasons. First, you will be able to pay bills online or with checks. You can have direct deposit payroll. You can use a debit card to order supplies from online sellers. Second, having such an account signals to the world that a third party has done its due diligence on your firm and you have passed its standards. This can help with raising capital and building confidence with your vendors and customers.

Safe Harbor Financial CEO Sundie Seefried, who has been providing financial services to cannabis companies since 2015, says to be sure you understand the Cole Memo, because you may believe everything you are doing is legal, but anything that hints at illegality will bring attention and audits to your finances. The memo covers eight specific areas, such as keeping cannabis out of minors’ hands, illegal growing, criminal activity and handling of funds. For example, one of the items states that one of the Department of Justice’s priorities is “Preventing revenue from the sale of marijuana from going to criminal enterprises, gangs, and cartels.” This seems simple enough. But do you really know your counterparties to transactions? Though they may be legally licensed, if they are running backdoor operations and get busted, your firm will show up in the company’s records, she says. At a minimum you will be questioned. Worst case you will need to hire lawyers to get yourself out of a sticky situation.

Finally, Seefried says customers who are disorganized or asking questions like, “Why do you need to know so much?” start off on the wrong foot. As mentioned earlier, the federal government has made no advances with regard to cannabis banking. So, if a financial institution takes on a cannabis company, the institution is taking on a liability. The depository institution needs to validate where funds have come from in order to avoid running afoul of money laundering statutes.

All told, being a “banking and financial adult” in the cannabis industry is absolutely critical for success. Understanding this will help you develop foundational relationships that will not only get you where you need to be for real liftoff, but will also help you navigate a range of issues as they arise down the road.

How Do You Like Me Now? Public Relations

In the realm of public relations, any organization—regardless of age, size or industry—asks its various audiences an immediate and familiar question: “How do you like me now?” But experienced organizations know that tending to this one query is the mere tip of an effective PR iceberg. Below the surface, deeper questions remain: “How will you like me in six months?” “What about in five years when my strategic plans are in full execution?” “Do you trust me?” “If not, how can I convince you to?” Then, of course, there’s the critical, “How about when I mess up? Will you be willing to give me a break?”

Indeed, contrary to many young organizations’ first forays into the field, solid PR is a deep and wide effort, and one that is as much proactive as it is reactive. Mature companies know this and are absolutely focused on creating “strong and durable reputations designed to not only generate excitement and trust, but also to weather storms,” explains Josh Weiss, president and founder of Scottsdale-based 10 to 1 Public Relations. “These tenants of PR are as true in the cannabis industry as they are in any industry. You’re trying to manage something more than just how your products land; this is far beyond marcom (marketing communications).”

PR is a tricky trade, even in longstanding, stable industries with well-known product sets that suffer no stigma in terms of reception in the marketplace. And while cannabis does throw a few new wrinkles into PR standard operating procedures, the fundamentals remain. “Remember the basics,” Weiss says. “[Share] little positive stories [such as local community involvement and case studies], company updates [such as product developments or new hires], community program and chamber of commerce participation, etc. Over time, these fundamentals build credibility with reporters and ultimately your target audiences. Focus on as many small objectives as possible, and you’ll reap the rewards down the line. Buyers (whether they’re B2B or B2C) want a strong reputation for quality, cost-effectiveness and, increasingly, a commitment to triple bottom-line objectives.”

Beyond the antes to effective PR, one often-overlooked, but critical facet of the field should be of particular importance to anyone in cannabis industry—crisis management. “Forward-thinking companies have this in mind when they choose a PR firm,” Weiss says. “They know how important it is to be prepared and then get out in front of bad things as soon as they happen.” “Bad things” can include anything from poor product making it through to market to a domestic violence case involving an employee.

“Mature PR knows this and is prepared to help you not only react (i.e., take responsibility and focus on what you’re doing right), but also to prepare in advance through proactive crisis management,” Weiss says. “This means going out into the community and developing relationships that exist beyond your product. It’s about building equity first, before you need it, as well as developing an emergency playbook.”

Finally, a sophisticated PR strategy includes constantly staying on top of what competitors are up to. “Coke never ever stops watching Pepsi,” Weiss says. “And smart cannabis firms are monitoring everything that’s going on not only in their state, but in others. Good PR is always aware of context—and thus helps identify competitive advantages, as well.”

Who am I, Really? Brand & Marketing Communication

Creating marketing communication that resonates with your customers might seem easy on the surface—targeted messaging, hot pitches, compelling visuals, strong packaging, etc. Yet, any industry pro will tell you, (even good) looks can be deceiving. Too often, young companies, especially in new and growing industries, tend to “wag the dog” with their marketing efforts, focusing on these common articulations while neglecting what should be the core element—brand.

For mature companies, all their touchpoints with the outside world are in orbit around the established tenants of their brand: Who are they? What problem do they solve? What are their business objectives? How do they want to be experienced by their audiences?

“These tenants can only come from planning and strategy development,” says Thomas Blanck, owner of TMB Partners, a strategic marketing firm with offices in Michigan and Arizona. “They don’t—and shouldn’t—come from assumptions or gut or personal aesthetics.”

Indeed, brand, as the core from which marketing efforts should emanate, should be developed with a strategic position in mind (see, your mission/vision) and an understanding of your trajectory and where you want to be one, five or even 10 years down the line.

“People tend to place so much emphasis on product marketing, they neglect to ask the question, ‘How are these articulations contributing to my desired brand presence?’” Blanck says. “The touchpoint where a consumer meets your offering should be in complete alignment with your brand. Just because something looks ‘cool,’ or you love the color or font, doesn’t mean that’s the right representation of who you are as a company.

“I want my clients asking, quarter to quarter, where do they want to be down the line. These markets are rapidly expanding. … Brand and successful marketing is not about being trendy. It’s about creating puzzle pieces that come together in a holistic way to encourage—and reduce barriers to—purchase.”

As an example, Blanck is a big believer that older customers represent a huge and untapped market on the B2C side of cannabis. He notes that the more mature companies are starting to get this, but that some newer firms are focusing entirely on coming off as purely “young and hip.” It’s these kinds of distinctions—and building a brand that can engage the entire breadth of your potential demographic—that Blanck sees as commonly miscalculated. “Remember,” he says, “there are a whole lot of 60-plus-year-olds in play here. Sophisticated brands and their marketers will tap into this market. Unsophisticated ones will not even be able to see it.”

All this said, once brand is developed, it is indeed time to start thinking about your many communication touchpoints so that they are both in sync with the brand and each other, and compelling to your identified demographic.

Scott Adelson is President of Adelson & Associates, a California-based branding and marketing firm and acting Chief Marketing Officer and Director of Product Development for High Desert Flower, Inc.

Loren Picard is CEO of High Desert Flower Inc., a vertically integrated cannabis company located in Oregon.