We are now all Cinderella. As if kissed by a prince in the forest, we have awakened from 80 years of prohibition. Previous generations witnessed the rise of great sailing ships, steam engines, automobiles, mass production, commercial flight, radio, telephone and television and space travel. Decades later a machine called a computer changed life as we knew it and the word “entrepreneur” became part of our lexicon and its own magazine title. Invention, previously the purview of genius alone, was democratized. The American dream, idyllically portrayed by Norman Rockwell, transitioned from being a company man to one’s own man.
Historically viewed as a criminal enterprise, cannabis is in the midst of an unprecedented, historical transition. Instead of international cartels, local drug dealers, and perceived society outcasts, today’s participants include advocates, researchers, patients, investors and entrepreneurs. Cannabis could be the greatest health, wellness and medical disruption the world has ever seen. Schedule I of the Controlled Substances Act, typically seen as a roadblock, is instead, a federal gift to any canntrapreneur, as it unnaturally restricts competitive forces. When Humpty Dumpty illegality tumbles, opportunities for wealth will grow, mirroring America’s other regulated industries, including energy, telecom, transportation, media, pharmaceuticals, tobacco and alcohol.
The catalyst to the “great fall” will be in part, the massive swing in voter support, the demonstrable reduction in opiate and alcohol use and further evidence of medical benefits. The most important catalyst however, will be money. Unlike its citizenry required to earn it, governments take it instead. Serving as the quintessential political narcotic, money provides politicians with the ability to fulfill campaign promises and get re-elected. As Washington, D.C. salivates on the sidelines, passively witnessing billions of dollars pouring into state and Canadian coffers, tax revenue addiction will be the necessary and final impetus.
Ups, downs and sideways are business as usual with any start-up. Warning signs for hazardous curves must be added when dealing with an emerging, regulated and in many cases, over-regulated industry. Rules are being written reactively in real time. There is a high risk of failure. Committing to a federally illegal business, which can’t deduct normal business expenses is not practical. You either have, or you don’t have the entrepreneurial DNA to move forward.
Are you prepared to: work harder and take longer, sleep less, need more money, repeatedly hear “no,” confront insecurity daily, accept failure, not get rich overnight, deal with risks of federal prosecution, asset seizure and IRS targeting, and be reminded of the mistakes you are making? If a single answer is “no,” working 9 to 5 may be your best option. If yes was your answer to all questions, it’s time to jump the next set of hurdles.
You can’t succeed unless you understand; knowledge is essential and there is no such thing as too much. There will be a direct relationship between the amount of knowledge acquired and the number of mistakes made. A basic understanding of history, law, government policy, plant biology, economics, product categories, agriculture and physiology is a must. Will your business touch the plant or not touch the plant? What industry sector will your business be in: agriculture technology, biotechnology, pharmaceuticals, professional services, consumption devices, cultivation, retail, hemp, edibles, manufactured or ancillary products, security, real estate or media?
A horse race requires both a horse and a jockey. Your professional and management team is your ”jockey”. The higher the quality of your jockey, the greater the credibility your business will have. The business and financial plan are your “horse”. The business plan must have both a macro industry analysis and a micro industry sector analysis. You must describe not only what you are selling, but why and how you intend to sell it. A competitor evaluation including your differentiators is essential. A financial plan must include a balance sheet, income statement and thorough analysis of expenses and projections. Lastly, does your business have any “secret sauce”?. Is there some added value that distinguishes your product or plan? Did you find a solution to an industry problem that will be intellectual property and which will protect your business (and your investors’ money) from competitors, as an alligator-filled moat protected castle inhabitants from outside aggression?
You have now worked for months around the clock for no money and are sleep deprived, irritable and tired of eating ramen. Unfortunately, there are other essential steps. In addition to doing everything else a non-cannabis startup must do, you must obtain a license (assuming you are plant touching) and raise capital. California has six license types: retail, retail/non-storefront, distributor, distributor-transport, testing laboratory, and microbusiness. The complexity of license applications has birthed a massive consultancy ecosystem to assist (or prey upon) unsophisticated applicants. This help does not come cheap: costs can be up to $50,000 plus a portion of your company’s equity. Regulators award points based upon criteria fulfillment. Requirements can include entity formation, a compliant physical location (yes, a lease can be required before you are even authorized to operate!), a business and financial plan, and a detailed personal history. Non-refundable license fees can range from $1,000 to $200,000 with a typical fee in California nearing $35,000. Lastly, unless you have a trust fund or recently have won the lottery, it’s time to raise some serious money. All founders can agree on one thing: raising money sucks and takes you away from doing what you love. You may call yourself the CEO, but your job right now is to beg, borrow and plead to get enough straw to feed your horse to ride with her over the finish line.
Congratulations. You learned and picked your industry sector. You wrote your company plans and found a solution that no one else considered. You obtained your license and found investors who believe in you and your business model. What now? Now it’s time for the trigger on the real starting gun to be pulled. Welcome to the cannabis industry. You’re a canntrapreneur!