Making a budget and sticking with it can be one of the biggest challenges for cannabis growers looking to expand their operation into the adult-use marketplace
After a bruising election season, most Americans are relieved it’s finally over. And if you listen carefully, you’ll hear the engines of business revving up, especially in the eight new legal cannabis markets.
Cannabis growers in these states have been waiting with bated breath for new opportunities to expand their businesses and get a piece of the multi-billion-dollar market opportunity. Many are excited to file applications for the limited number of licenses as soon as they become available. To score well in this competitive process, it will benefit entrepreneurs to spend this quiet period (before applications are released) sharpening their pencils, rather than their tools.
If you’re an experienced grower, this article may serve as a checklist. If you’ve been running a small indie grow and want to “go big,” or you’re setting up a first-time operation, you’ll likely have to raise some money. Investors will want to make sure you know how to grow, but they’ll also take a hard look at your numbers to ensure you know how to manage a business.
Read the Regs
How many acres can I grow? Can I also own a dispensary? What will the taxes be? The answers to many of your cannabis questions will be found in your state and local regulations. These can be found online, usually in PDF format. Find them, print them, read them, learn them and take plenty of notes. These regulations will tell you what you will be allowed to do, and what you will be required to do. No business can survive without knowing the regulations.
Don’t be too shocked if those costs are upwards of $250,000 or more. Each state has its own requirements. Your state and local regulations will tell you the costs to apply. Don’t let the application fee deter you — it’s just another line item in your budget.
Property and Equipment
Most growers have been fantasizing about a prime piece of land for some time. In planning your operation, you’ll have to think about what that land is going to cost. Are you going to buy or lease? Is it raw land, or does it have structures on it? Does it have a greenhouse or need one? With items like drying racks, rolling tables and trimming shears, is there used equipment available or will you have to buy all new equipment?
Here are a few things you should research and consider carefully:
– Property: Will your state and municipality allow a landowner to lease to a cannabis business? Depending on local, state and federal regulations, you may have to buy the land outright, and you may have to do it with 100% cash.
– Security: Do you have a safety and security plan, which considers health and welfare issues, from workplace safety to transportation to letting visitors on your property, for you and your workers? Surveillance? Storage of the Recordings? Touch-keypad locks? First Aid? Fire suppression? Put the work in here; it will always pay off in the long run.
– HVAC and controllers: Outdoor grows don’t need HVAC systems, of course, but for indoor and greenhouse grows, producing a maximum yield depends on a controlled, ideal environment. HVAC systems will be rated in tons of heating and cooling.
– Water treatment: Oftentimes, excessive dissolved salts and other contaminants may be found in untreated source water. While some salts, for example, are necessary for proper cannabis growth, excessive salts may be toxic for your crop. Similarly, water temperature is of vital importance as water that is too cold will limit the plants’ rate of metabolism and growth. Price out such systems and know which features are most important in your geography.
– Rolling benches: To maximize canopy space and to allow employees to move the plants easily, many growers use a rolling bench system. Rolling benches offer 25-30% more room for plants than fixed table setups, but some states may require them to be manufactured from stainless steel.
– Odor control: Not long ago an indoor grow operation made the news for being shut down because the owners complained about the cannabis smell. Make sure you know your state and local regulations about odor control, as well as other neighborhood considerations.
General Business and Administrative Costs
Once you’ve figured out all the costs of your property and equipment, and assuming you have a rock-star growing methodology, we can skip the conversation about soil amendment and nutrients and go straight to the stuff no one likes to think about (but will ruin you if you don’t): Utilities. General Business Expenses. Payroll. Insurance. Taxes. A vault.
– Utilities: Electricity, water, gas, trash … these might be boring subjects, but they can weigh down your operation if you’re not prepared for them. Cultivation is resource intensive, so put in the time to anticipate these costs, including seasonal variations.
– General business expenses: These might include bookkeeping, computers, office supplies and marketing expenses. As a general rule, the U.S. Small Business Administration recommends small businesses with revenues of less than $5 million to allocate 7-8% of their income to marketing.
– Payroll: This includes more than just employees’ wages, including taxes, contributions, Federal Insurance Contributions Act taxes (which include Social Security and Medicare), federal unemployment taxes, federal income taxes and state income taxes. Even part-time or temporary employees who make $600 or more should be reported as 1099s.
– Insurance: You know you need it, and it’s far better to recognize it ahead of time.
– Taxes: Taxes will be outlined in the regulations. It’s best to know these numbers by heart, when they need to be paid and how they’re collected.
– Vault or safe: Depending on the size, these can easily cost several thousand dollars or more.
Some sticky state requirements.
Some states, such as California, are going to require a track-and-trace system. This means all cannabis product can be tracked from seedling to final consumer using software to trace its history. Most of these requirements have not been finalized; however, both the procedures and the software could become a requirement in your state. Also, states may require laboratory testing of random samples of product. The lab will test for potency, and also for safety concerns, such as the presence of molds, residual pesticides, etc. Plan for this extra step and the costs.
And finally, after your product is harvested, you will have to transport it to the point of sale. Most likely, you will have to pay these transportation costs. You may be able to negotiate some split with the retailer, or it may be determined at the state regulatory level. Your final product may have to be packaged for retail sale (competing for shelf space and eyeballs with all the other fancy packaging out there), or for delivery as wholesale (there may be state regulations for packaging and control of wholesale product). Either way, build it into your budget.
The last word
Whether joining the newly regulated cannabis cultivation market, or expanding an existing operation, the most successful growers will have put a great deal of effort into mastering their state and local regulations, and they will create and follow a detailed budget. This hard work, like the effort it takes to grow great product, will really pay off.
Avis Bulbulyan is the founder and CEO of SIVA Enterprises, a full-service business development firm providing consulting, turn-key management, venture opportunities, brand acquisitions and licensing support to cannabis entrepreneurs across the U.S. Led by his experience and expertise, SIVA Enterprises is considered one of the most reputable consulting companies in the cannabis industry, with one of the highest success rates nationwide for state licensing. He can be reached at firstname.lastname@example.org.