Marijuana Business Magazine May-June 2019

Marijuana Business Magazine | May-June 2019 94 “The reality today is that you need at least $500,000 to get started, if you ignore the fact of real estate,” Lencho said. “And that’s just to figure out your general costs. And it might assume you don’t have a license. You may have to enter into a partnership with an existing business that’s also cash-strapped. If you’re talking retail, I don’t think you can get in for less than $3 million.” Lencho said companies should budget for at least five years of zero profitability to give themselves an appropriate runway to be successful in the long term. And that five-year clock, she emphasized, should start in 2018 or later because of the effects that new state and local indus- try rules had on profit margins. Don’t Rush Your Business Plan In retrospect, Domingo said he got caught up in the excitement of the California market going fully legal,and he ran pell- mell to get his local and state licenses. “That was the biggest mistake: having a sense of desperation, of needing a license immediately,” Domingo said. He said many of the cities he’s watched implement MJ business ordinances at a slower pace have done so with more business-friendly regulations, including lower tax rates and other incentives. Ad- ditionally, Domingo said there’s generally less upheaval in those regions. Not rushing also gives entrepreneurs time to get their capitalization in place, flesh out the product line, get the right team hired and line up investors, if necessary. “In hindsight, having launched in 2015 and not knowing what the regulated market would have looked like, I wouldn’t have gone into physical production as early,” Katz said. “I would have waited to see what the system would look like, with the idea.” There’s also the added likelihood that more cities and counties will begin allow- ing MJ companies to set up shop as time goes on, giving businesses even more choices when it comes to deciding where to locate. Los Angeles, for instance, was still figuring out the timeline for its next licensing round this spring. “People feel like … if they don’t do what they envision right away, that they’re never going to get to do it,” Katz said. “But it’s still so early … that there is time to develop a business plan.” Be Creative With Planning, Advertising and Products Given the highly competitive nature of the California market, along with advertising restrictions and other hurdles not faced by mainstream industries, another key to staying afloat is creativity. That comes into play when figuring out new revenue streams, advertising options and even new product offerings, said Zeta Ceti, the CEO of Oakland-based Green Rush Consulting. “A lot of people don’t think about, ‘How do you do royalty agreements across state lines to drive more reve- nue?’” Ceti noted. “You have to get really creative and strategic about driving more revenue and increasing your margins … because all those things are closing in on you every single day.” That would also include expanding into a different license type, Lencho said, such as a “Type S,” which is a California state MJ business permit that allows “shared-use” manufacturing facilities. There aren’t many cities or counties that allow such permits, Lencho noted, but she added, “The Type S permit, given how difficult it is to make ends meet if you’re not a retailer, should be revisited by as many licensees as are eligible. “It may be worth it to try and find a Type S that’s outside of your jurisdiction and just plan that transportation time,” Lencho noted. “Because being able to share facilities and space is really important as businesses are getting up and running.” When it comes to that same creativity, she said, another important pointer is to stay on top of changing regulations. For instance, one bill before the California Legislature this year would allow for free trade samples to be shared among business licensees. Edibles makers, for example, could give a sample to a retail- er to persuade them their inventory is worth stocking. A change like that could be a major boon for just about any company upstream in the supply chain, Lencho noted, and it’s part of building traction as a brand. Read the Fine Print to Avoid Unsavory Investors Taking on partners to help fund a new business is a standard practice for entre- preneurs, and the investment field has broadened significantly in recent years, giving MJ companies more access to capital than a few years ago. But even as investment deals in cannabis have shot through the roof, so Cannabis Casualty In hindsight, having launched in 2015 and not knowing what the regulated market would have looked like, I wouldn’t have gone into physical production as early.” —Michael Katz