Written by: Ian Caine Wilson, MBA
Business Strategist + Development Consultant
There are many new entrants into the commercial cannabis space across the world. As I talk and work with folks who are entering the cultivation side of the industry, I find that many new entrants are falling into the same pitfalls as each other. While many business people have usually having experienced great success in some other sector of the business world, there is not a full understanding that cannabis cultivation is quite a different business.
Here are 7 common pitfalls that could prevent well-intentioned professionals from achieving that same success in their new venture.
1. "CORPORATE" TEAMS
Many folks I come across are beginning the facility design phase from a corporate perspective, and have no one on their team with actual experience in the space. These folks may be entrusting a multi-million dollar plan for the design of their facility to an architect who has never run such a facility. Few know what it takes to grow quality cannabis. Corporatized ideas from well established business models leads investors to only find a cultivator once close to operational, and that is a huge mistake.
Not only should the cultivator be identified [in the pre-planning stages], but that grower should have a great deal of input as to what the space looks like and what equipment it contains. There are many different ways to grow this incredible plant and you want your cultivator to be comfortable with the methodology being used so that they can best do their job. Investors may have visions of growing in a style that no longer makes sense from an efficiency perspective and you won’t find that out until you are heavily invested in it. Having an experienced cultivator on your leadership team can help prevent a world of costly do-overs.
Additionally, I’m seeing corporate folks come into the industry with no understanding of the existing cannabis culture and they don’t get what it has taken to get our country to the point of wide spread legalization. I’ve come across new companies that look down upon the so-called “stoner” culture and lump everyone from that culture into the “stoner” stereotype. Because of this, these types of folks are unwilling to bring in experienced people. Or, they can be refused potential strategic partnerships by businesses that are “from the culture” who recognize hypocrisy of entering the industry while denouncing those that shaped it.
2. LACK OF CULTIVATION EXPERIENCE
Related to number 1, but somewhat different, is companies coming into the space with an inexperienced cultivator; person hasn’t grown in a space larger than a garage and has yet to grow at commercial scale. Trying to scale up to a 10,000 square foot canopy from one that was 300sq. ft. is no easy thing. I was once hired to help a fairly large facility that had a famous, award-winning cultivator running their operation. It was his first experience growing at scale and managing all that such an endeavor entails including multiple employees, deliveries, investors with bottom-lines, and thousands of plants instead of 100. This gentleman was really struggling to get decent yields of high-quality product and it was costing the investors a great deal of money.
When a cultivator is in charge but lacks large-scale experience, it is very easy for minor oversights to become major costs down the road. If cloning isn’t done on time, there may be a bloom room sitting empty in 6 weeks, losing money by the day. If pruning of flowering plants isn’t completed on time, you may have a decreased yield, or your flowers might ripen late. There are so many factors that have to be kept track of in a commercial cultivation facility that overlooking just one of them can cost the company tens of thousands of dollars. Can you afford to let your cultivator learn how to manage your multi-million dollar facility while you lose money?
3. NO SOP'S
There are a lot of cultivations out there that don’t have, or aren’t using, any standard operating procedures (SOP’s). I can’t think of a bigger mistake you could make in a large-scale grow. If you don’t have all of your procedures such as feeding schedules, pest management, or room disinfection, you are increasing the risk of killing your plants, getting a pest outbreak, or spreading powdery mildew throughout your facility. I know growers who rely on their own ‘secret sauce’ when it comes to nutrients and they don’t even share it with their employees, let alone standardize the procedures for deciding what and how much to feed the plants. This method can work out fine for a long time, but then one day, the head cultivator is sick and the employees don’t know how to proceed -- now faced with the specter of figuring things out for themselves and potentially negatively impacting the crop. This is less than ideal for both the employee and your business.
4. LACK OF FINANCING
The cost of entry into cultivation within the regulated market is a great deal higher than it was before regulation. Doing things according to law and building codes adds significant cost to a cultivation project. Additionally, there are sure to be unforeseen delays and higher costs than folks expect. My advice is always count on spending twice a much, minimum, as you think you are going to. Have enough financing on board to support this from the start of your project or you are going to spend even more when your money runs out and your build-out is delayed, costing you tens of thousands a month in rent, mortgage payments, and (if you’re doing things right) salaries for key employees.
To help mitigate issues with budget, be sure to thoroughly vet your architect, hire contractors with experience in the industry so they aren’t having to figure out how to do their trade in a new industry or scale, and don’t try to save money by purchasing cheap equipment. While the first two are obvious, the last is a little more subtle. Cheap equipment is likely to either break or not perform as well as the more expensive quality stuff. This can lead to breakdowns before revenue, or lower yields, both of which greatly affect your bottom line and can occur before you ever even make a sale, costing you more start-up money that you anticipated.
5. UNPROVEN CANNABIS TECH
I’ve lost count of how many people have told me that they are going to grow under LED lights that their neighbor, or some guy they met by chance, i growing with. Every time I hear this I ask the same question, “Have they grown cannabis at scale under their LED light?” Every time, without fail, the answer is something along the lines of, “no but it’s not that hard to design.” If that were true, there would be way more quality LED manufacturers than there currently are. I tell these folks that if it were that easy, the companies that are spending the most on research and development wouldn’t be the industry leaders.
I’ve also seen people from other agricultural industries attempt to use a technology they know, but is unproven in cannabis, as THE way they are going to grow. I once went in a greenhouse where they were attempting to grow cannabis hydroponically the way the Dutch grow tomatoes in single plant rows on raised hydroponic slabs and I couldn’t have imagined a less efficient use of space in which to grow the cannabis plant: there was more empty space than canopy and it was costing this company money in missed profits every day.
It’s great to try new products, but if they have no proof of concept in your application, be very careful.
6. EMPLOYEE RISK
I don’t hear many people talking about employee risk at this stage of the cannabis game. When I bring up things like skin cancer risk from UV rays both indoors and out or having employees up on ladders, I’m often scoffed at.
Owners either don’t believe that these risks are real, or they plan to put them off until OSHA comes into the industry and forces them to correct their actions. But what those people aren’t thinking about is what happens when an employee who has melanoma and sues the company for negligence. Plus, let’s be real, we should be taking care of and looking out for our employees; they are the backbone of our businesses.
7. LACK OF BRANDING + MARKETING
This one is prevalent in many industries but it is increasingly frustrating for me as it relates to cannabis. Gone are the days when “weed sells itself.”
... Well, I suppose that’s not entirely true...
Cannabis does sell itself; massive amounts of product will be purchased. But with 50 other brands on the shelf, you can risk not considering the things that will make the customer buy YOUR product versus the others.
Unless you’re selling your product in bulk to another company that is going to package and brand it as their own, you have to have a solid brand identity and an equally solid marketing strategy. We live in a consumer society and marketing works; there is study after study proving it so. I talk to people who are spending over $3 million on their cultivation facility build-out, where the electricity bill will be upwards of $30k per month. The branding budget, however, is an afterthought and is something along the lines of $15,000 with a monthly marketing budget of only $10,000, including labor. There’s no way this strategy is going to lead to long-term success for a new brand.
Hopefully, you folks entering the cultivation space won’t make these common mistakes as you begin your journey into this exciting new industry.