A comprehensive business plan is an essential part of launching a successful cannabis business.
While they are often needed for recruiting a management team, applying for and winning a license, and pitching investors to secure funding, business plans are first and foremost necessary to determine whether a business concept is even viable in the first place, according to Pashman Stein attorney Alana Hans-Cohen.
A solid business plan can also be useful to help internal stakeholders stay on track and reduce risk, she says.
While a business plan to secure a license may have slightly different requirements, depending on state regulations, Hans-Cohen says most business plans can be created with many of the same components, including an executive summary, business description, market analysis, organizational structure, products and services overview, and financial projections.
Here, Hans-Cohen offers insight into each step of the process to successfully craft a business plan in the cannabis industry.
1. Do your research.
Before diving into the actual writing of the business plan, Hans-Cohen says entrepreneurs must first extensively research the state regulations and the overall landscape of the market, especially for new businesses that are initially entering the cannabis industry.
“I highly always recommend to everybody, go to your state website, look at all the information that the state is providing you, because a lot of times there are good things there that will better help inform you on whether you want to move forward and, if you do, which way you want to go,” Hans-Cohen says. “You want to decide a general path before you go writing your business plan. Once you figure out what you want to do, what you have a passion for, … do it in conjunction with that research. Once you figure out at least an overall goal for yourself—like, ‘Oh, I want to open a retailer, and I'm sure I want to open a cannabis retailer’—then I would start doing all of these research items, figuring out [the] market … and making sure that those things are viable before [you] spend the time to do all the other things. …
“You may realize halfway through your plan that this is not going to work as you have it laid out and things that you're going to need to pivot and change it up and figure out if you still want to do this, how can you make it work? And then that may change aspects of your business plan.”
2. Keep the executive summary brief.
Hans-Cohen says there is something to the phrase, “too long, didn’t read.” While an executive summary, the first component of a business plan, should briefly summarize the plan and provide a general understanding of the business, it should be just that: a brief overview.
“It shows a snapshot of your business,” Hans-Cohen says. “It’s going to show those key components in the business plan, but just in short format. It helps people who are not reading [the entire plan to] quickly get the most important details fast.”
3. A standard business description will do.
Some components of the business plan, such as the business description, are standard across all industries, Hans-Cohen says, and there is no reason for cannabis operators to overcomplicate these sections.
The business description should include the organization’s mission, vision and objectives, Hans-Cohen says, and should set out goals that provide the context for the next section of the business plan: the market analysis.
4. Identify opportunities and challenges through a market analysis.
A solid market analysis is important when pitching the business to investors, Hans-Cohen says, but it is also critical in helping management understand opportunities and challenges based on the competitive landscape.
“This is going to be super key, especially for investors, … but this will help you understand, what's the position in the market? What does the market look like? Where this proposed business is going to be, what are the opportunities and what are those challenges that you may encounter in this industry?” Hans-Cohen says. “Everyone likes to think of things just on a state level, but oftentimes, especially in New York, you have vast differences amongst upstate versus downstate.”
Identifying pain points in the market and gaps that the competition has yet to fill are also critical components of a market analysis, she adds.
“Once you identify those gaps, that's a lot of what you're going to want to articulate,” Hans-Cohen says. “You should be talking about your passion … and your target audience, which you may have discussed in your market research, but talk about, through your market research, where you found these gaps … and how you're going to solve these problems.”
Entrepreneurs can begin to introduce their team and how certain staff members will help overcome market challenges, Hans-Cohen says. For example, if a member of the team has strong writing skills, he or she should be highlighted as someone who can help with business license applications or content writing for the company’s website.
5. Highlight management’s strengths in the organizational structure.
Start-ups may not have many team members to note in the organizational structure component of the business plan, but Hans-Cohen says the founder and any senior staff members should be listed along with explanations of their strengths and why they are qualified for their roles.
“Whatever core team members, lay them out in their roles, and you also are going to be discussing the competency of the people in those roles to be able to show that the business and these stakeholders will be able to actually execute this business plan,” Hans-Cohen says.
6. Reveal your differentiating factor when describing products and services.
One of the purposes of a business plan is to identify and explain what makes your business unique, and Hans-Cohen says the component that outlines the business’s products and services is a great place to reveal your differentiating factor.
“Thinking about it from a retailer perspective as far as cannabis, what are you going to offer? What do you feature? What are the benefits of me shopping and buying products from you?” she asks. “It helps outside people, whether that's the investors or even your team members, understand what … the business [sells] and how … it [meets] the needs of its target market that you discussed in your market analysis.”
Hans-Cohen says that in crowded markets with many cultivators and manufacturers producing the same products, it may be more difficult to set the business apart through its product offerings. In these instances, it would be advantageous to find a way to differentiate the business through its services.
“Why do I want to shop with you instead of Joe down the street when he has the exact same products?” Hans-Cohen asks. “I think a lot of people forget that. I see a lot of people here who like to say, ‘Oh, we're going to sell top-shelf cannabis to whomever,’ but everybody's going to be selling those same things because that's the only product available. So, it's always key to think about that.”
Extraordinary customer service is a common differentiating factor for retailers. Hans-Cohen says prospective dispensary owners should articulate how they will go above and beyond for their customers and what unique features they will provide to entice consumers to choose their store over the competition.
“You're going to really want to focus on talking about these different selling points as to what makes you better and why you are going to be successful over your competitors,” she says. “I think that's … really going to help you focus your niche and find what that is and find what's going to make you viable in the long term.”
7. Marketing matters.
The business’s marketing and sales strategy, often the next component of a business plan, should flow logically from the discussion of the products and services offered, Hans-Cohen says. This includes a thought-out plan of how the business will promote its products, reach its target market and achieve sales objectives.
While some of these elements may be less built out in start-ups, Hans-Cohen says the more that can be decided upon and noted in the business plan, the better.
8. Be as detailed as possible with your financial projection.
When investors review business plans, Hans-Cohen says they are most interested in how they are going to get their return on investment, so it is important to include as much information as possible to paint a complete picture of the business’s financial health and viability.
This includes information about what it will cost to run the business and initial sales projections, as well as income statements, like balance sheets or proposed cashflow statements.
“This will demonstrate how you expect the business's financial health and its ability to generate profits in the future,” Hans-Cohen says.
A solid financial projection will also help you—and potential investors—understand how much capital the business needs to raise. It is also important to outline how the business will use any funding it receives, Hans-Cohen says.
“People don't want to give you money and you're going to take private jets,” she says. “They want to know how you're going to use it in growing the business [and] address the financial requirements. You basically want to help these lenders or investors better understand your financial viability, that the business is financially viable and will make a profit and they'll get their money back.”
9. Know when to pivot.
Oftentimes, a business plan becomes a living document that can and should be reassessed and reworked as needed, as the business grows and evolves. It is critical for management to constantly assess risk mitigation, strategic planning and resource allocation to keep the business plan updated and relevant.
“You need to know how to pivot in cannabis because things change all the time,” Hans-Cohen says. “I think being ready to pivot on any of these things is just a really good tip for everybody.”
