Marijuana Business Magazine May-June 2019

Marijuana Business Magazine | May-June 2019 92 Here are tips for how to stay afloat in the California market—or successfully break in as a new entrant. Make Sure You’re Correctly Capitalized A common misunderstanding among those outside the marijuana industry is that it’s still cheap to start a business. “My general rule of thumb for folks who are contemplating entering the industry is that if you can’t set at least $100,000 on fire without flinching or tears, this isn’t for you,” Juli Crockett, compliance director at L.A.-based MMLG Consulting, wrote in an email to Marijuana Business Magazine. Startup costs can range from the low six figures to several million dollars, depending on several factors, such as whether a company is in cultivation, retail or another vertical. Domingo, for instance, said he’s invest- ing about $500,000 in the delivery side of his upcoming Sacramento MJ company, but the cultivation portion will likely cost “upwards of $1 million.” San Francisco-based cannabis industry attorney Tsion “Sunshine” Lencho said $500,000 is a decent starting point, but costs only go up from there. There are plenty of pitfalls in the jungle that is the California cannabis market. Marijuana Business Magazine spoke with industry veterans who offered these pointers for not losing your company—or your sanity—as a new business owner: Real estate can be the key to building a successful marijuana company in California, because it’s not always easy to find landlords willing to rent to cannabis businesses or to find a properly zoned parcel in a city or county willing to grant a permit. This is the starting point for any newmarket entrant—or for legacy companies trying to find a legal home.“The largest factor (in the California MJ market contraction) is an artificial limit on the marketplace, put in place by the locals themselves,” said Tsion “Sunshine” Lencho, a San Francisco-based attorney serving the marijuana industry.“If you could not get a landlord on board …or if you weren’t in a jurisdiction that was offering open permitting, then it was near impossible to transition your gray-market business in 2018.” One reason to have excessive capitalization before seeking a business permit is unexpected fees. “A lot of people coming in think it’s only a few thousand bucks to get a permit from the city,” said Steven Domingo, the former owner of delivery company WeDrop. “You also have to get your business operating permit, your state license, and—if you’re a delivery— you also have to account for the inventory you’re going to get, the insurance, the state bonds. There are so many hidden fees. When people first come in, all they see is the city permit, but there are a lot of layers.” Two more tips: • Be wary of some culture clash: Many members of the California industry are still very rooted in a philosophy of compassionate care and cannabis as medicine—not just a commodity—which has been conflicting with executives and businesses that are capitalists first and philanthropists second. “The biggest thing is really coming in mindfully and choosing your partners wisely and really making sure that you know where your center is,” said Michael Katz, the Mendocino-based founder of the Emerald Exchange and the now- shuttered, Los Angeles-based Evoxe Laboratories. “Find like-minded, heart-driven people with whom to do business.” • Focus on the fundamentals: That means networking, advertising and building a brand—the same as in any other industry. “At the end of the day, it’s about building a strong brand, building those relationships, making sure you stay as efficient as possible with your operations, because your margins are going to get squeezed every day,” said Zeta Ceti, the CEO of Green Rush Consulting in Oakland. — John Schroyer Clearing the Hurdles Tsion “Sunshine” Lencho is a cannabis-focused attorney based in San Francisco. Courtesy Photo Steven Domingo founded marijuana-delivery business WeDrop, which he relocated to Sacramento after one year. Courtesy Photo Cannabis Casualty