4 Challenges of Scaling Up a Legal Cannabis Business
Running a business is hard; running a cannabis business is harder. Scaling up said cannabis business, however, is fraught with even more challenges. Chris Bond runs us through a few of the most common hurdles these entrepreneurs face.
The growing of any business is fraught with challenges. Staying current on the industry’s regulations and rules, determining how to fund additional inventory, finding and retaining more or new and competent staff—these are all obstacles business owners must navigate to be successful. Enter the legal cannabis business, though, and these challenges are magnified exponentially. This is especially true for entrepreneurs who want to grow their cannabis businesses, be it a dispensary, a cultivation, or a tourist operation. Some of these wrinkles are likely to get smoothed out in the coming years as more and more states and communities decriminalize or legalize cannabis use. For the time being, however, cannabis entrepreneurs face additional hurdles that traditional businesses do not have to jump over.
Stigma of Marijuana Usage
Despite data that reports to the contrary, the stereotypical cannabis consumer is thought to be largely young, unemployed, socially challenged, in and out of the criminal justice system, and/or a drug addict. It is difficult to erase this image, making legitimate proprietors of cannabis related industries at a handicap when dealing with other business industries thought to be more “dignified.” Furthermore, any proprietor of a legally run cannabis business may also be stigmatized as a “drug dealer” or “pusher.”
Few other legitimate industries have to overcome this obstacle to be treated fairly and as an equal player. Also, as the cannabis industry gains more attention, the more the target of ostracism that business or business owner is likely to face. This may be the least painful of the growing pains that an expanding cannabis business is likely to face, but one never knows when the personal beliefs of an individual can manifest themselves in the form of denying a good or service to another business.
Legal and Regulatory Issues
Unless they obtained special dispensation from the Drug Enforcement Administration (DEA), cannabis business owners are operating their business illegally at the federal level. This is true for any scale that a marijuana business operates at; however, the larger the business, the bigger the bull’s eye. State and municipal legislation, even in jurisdictions where cannabis is legal, is also not always clear and frequently changes.
Entrepreneurs in the cannabis business cannot make long-term decisions regarding growth based on current laws. As it stands, any contract or deal entered into by cannabis-related businesses, though it may have been entered into knowingly and legally, may not be enforceable. This puts businesses at great risk. Furthermore, though getting easier, it is still a challenge to find reliable and knowledgeable counsel in the realm of legal marijuana legislation and statutes to represent cannabis entrepreneurs as they navigate their way through the various regulations they need to follow to increase their market share or operational footprint.
It is also easy to steal from marijuana businesses. Not in the traditional sense, but the law doesn’t protect anything created by marijuana businesses like it does for other enterprises. Patents and intellectual property legally and rightfully earned by cannabis businesses are not enforceable at the federal level. This puts them at great risk of being violated, and owners have no opportunity to seek recompense for any violation. As cannabis businesses grow and create new blends, strains, or other novel products, they should be aware of the potential exposure to this theft of ideas.
All property that is legally owned by proprietors or companies in the cannabis-related industry is also at risk. At any time, the DEA or any other federal agency can raid cannabis operations that are fully compliant with the laws of the state in which they reside. Any such operations may not just be subject to being shut down, but all the companies’ assets and even the private assets of the companies’ owners can be seized as well. The larger the company, the more assets that are at risk.
Marketing is another sticky wicket in the world of legal cannabis. Much like other highly regulated industries, such as tobacco, cannabis businesses are not usually able to promote their product through traditional media avenues. While social media is a great and largely unregulated way to get the word out, a lack of the support of traditional advertising vehicles like print, radio, and television still potentially hold back the growth of some marijuana-based businesses.
Due to restrictions from the banking and lending industries, many legitimate cannabis transactions need to be handled in cash only. This represents its own forms of scrutiny due to its challenges in bookkeeping, storage, and transport. Cannabis-related businesses are not eligible for protection under the bankruptcy laws that shield other enterprises from creditors or allow for a structured settlement of debts.
Loans and the services of traditional lending agencies are also not currently available to cannabis entrepreneurs that wish to expand their businesses. To get the necessary funding to purchase infrastructure and equipment that would aid in scaling up their respective businesses, marijuana entrepreneurs must find private or “hard-money” sources, often being charged near-usurious rates.
As marijuana-related businesses seek to get larger, this often entails hiring additional staff. However, finding skilled individuals to grow, harvest, process, and otherwise handle cannabis or cannabis-derived products is challenging. Depending on the state, training, certification, and licensing is a requirement and an additional expense that needs to be borne. Cannabis businesses cannot just place a help-wanted sign on their storefront windows and hire the first able-bodied individuals that come in looking to fill the positions. Also, they need to weed out those job-seekers that are looking to get into the business because they think they will have easy access to marijuana.
Cannabis businesses looking to scale up face plenty of challenges. Thankfully, these challenges are not insurmountable and some of these issues are likely to be smoothed out in the coming years as cannabis continues to be accepted, decriminalized, and legalized.