Heeding the 5 Fundamentals of the Cannabis Business

Screen Shot 2016 10 11 at 8.38.07 PM
Screen Shot 2016 10 11 at 8.38.07 PM

Making the time to implement proven cannabis business solutions will only result in positive benefits for owners overworked and overwhelmed with the demands of a growing industry.

Over the past twenty-five years, I’ve built and sold five companies, raised more than $100 million in capital, earned an MBA from Harvard, supported close family members through alcoholism and raised three awesome kids. I also believe in enabling the dreams of others and would like to help cannabis managers build amazing companies for themselves.

Not long ago, a couple who own a small delivery service confessed to me, “We’re working seventy hours a week, and the business isn’t getting anywhere.” For many cannabis owners or managers, this might sound familiar. Whether they’re dispensing, delivering, transporting, testing, extracting, manufacturing, or cultivating, many managers feel overwhelmed by the demands of their business.

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In the case of my delivery service friends, one handles dispatch, and the other handles purchasing. When not filling in for absentee drivers, they co-manage advertising, customer service, strategic planning, accounting, compliance, budgeting, information systems, human resources, legal issues, and warehousing. They touch everything in their business, work harder than any other employee, and suspect many of their employees don’t meet the grade. Sometimes customers don’t pay promptly, cash flow is tight, and vendors routinely flame them for late invoices. If you “feel their pain,” you’re not alone. Let’s peel back the layers of their business, so we can determine where to change yours.

SOLUTION 1: BE STRATEGIC, NOT TACTICAL

As a first step, my friends must recognize that allowing themselves to become mired in the day-to-day details of the business is a poor choice. They have a patient—their business—and it’s somewhat lifeless on the table. They need to quit micromanaging decisions that are not strategic. No doubt, my friends can perform many job functions better than any of their employees; however, when they’re doing those jobs, they’re not planning, running, and leading the business. My delivery friends need to prioritize strategic work even if it means a customer doesn’t get a delivery or something doesn’t get ordered on time. More than likely, the business won’t crash if someone else creates the next advertising copy or if a couple of customers receive less-than-stellar service.

SOLUTION 2: DELEGATE, EMPOWER AND ENFRANCHISE

After a change in mindset, the next layer involves pushing decisions and ownership to key team members. My dad used to say, “Many hands make light work.” When people feel authority for something, they take responsibility for it. Better still, my delivery friends could make a couple of key employees junior partners or small equity owners.

At my cannabis company, CANNDESCENT, every employee down to the trim room has stock options, because when people feel empowered and have an opportunity to better their lives, they walk through walls for the business. Bottom line, if my delivery friends make their business a vehicle for the hopes and dreams of all and empower their employees to change outcomes, the company will drive forward with more horsepower.

SOLUTION 3: PROPERLY CAPITALIZE THE ENTERPRISE

If you’re thinking something like, “I don’t have the money to acquire the type of people, systems or consultants to whom I can delegate,” that’s rational. In that case, like my delivery friends, you must recognize your business has a structural problem: It’s undercapitalized. My delivery friends must raise or borrow money in order to hire talent and acquire proper business tools. Improperly capitalized, the business will continue to engulf them.

SOLUTION 4: RESEARCH AND WRITE A DETAILED PLAN

When it comes to raising capital, most cannabis owners and managers quickly feel uncomfortable. My delivery friends certainly are. Business plans, fundraising, forecasting, and subscription documents can read like a foreign language to most. This said, my friends must confront this challenge head on. To help them, the internet has thousands of free templates, examples, and explanations. They must study these templates until they internalize the key questions they need to answer in their business plan. After that, they need to research, think, calculate, write, and make PowerPoint charts and diagrams until they’ve memorialized it all. If they properly invest in the exercise, they’ll prepare for every conceivable investor question, get the money they need, and have a compass to navigate their business’s future.

Cannabis BusinessSOLUTION 5: LEGALIZE YOUR BUSINESS

As part of fundraising, my friends must consult with attorneys to ensure their plans, solicitation, and business structure comply with state and local law. Unfortunately for my delivery service friends, they are not in this position. My friends, like 80 percent of the dispensaries and delivery services in California and 99 percent of the cultivators, do not possess a municipal license to operate their business legally. Even though they have a collective and some patient documentation, they run a “pop-up” shop that local authorities can shut down at any time.

Without full documentation and a conditional use permit, a malignancy is slowly killing their business from the inside. No matter how hard they try, my delivery friends will eventually fail unless they obtain the proper licenses. Without a proper legal foundation, a business cannot attract investors, hire great talent, acquire better systems, delegate, and create happy customers.

And, there’s the headline. Determining where and how your business can comply 100 percent with state and local law is the first step and solution for working on your cannabis business. It’s the strategic thing you need to prioritize even if the foundation means the business takes a step or two backwards in the short term. You might even need to relocate to a friendlier jurisdiction. No doubt, you’ll encounter frustrating red tape along the way. A legal platform, however, is the only platform from which you can operate in a regulated, decriminalized industry.

Here’s the good news: With compliance and legality comes an investible thesis. With an investible thesis, you can write a great plan. With a great plan, you can raise money. With money, you can purchase talent, systems, and inventory. With talent, systems, and inventory, you can delegate and empower. When you delegate and empower, you create happy, loyal customers because “many hands make light work.”

If you haven’t done so, commit to taking all steps necessary to become compliant. If you’re already compliant, make sure you have a detailed plan and adequate capitalization. If you’ve accomplished all these steps, delegate, empower, and enfranchise as much as possible. If you’re on top of all that, guard against getting sucked into the day-to-day details. Always work on the business instead of in the business.

If you’ve figured out all the solutions, I’d like a job.

cannabis businessAdrian Sedlin is the chief executive officer for CANNDESCENT, the first municipally permitted cultivator in Southern California. Visit CANNDESCENT.com for more information.

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