How to Start a Cannabis Company [From a Financial Standpoint]

Dec 29, 2020 | Cannabis Business

While attending a business school may help with starting your own company, learning how to start a cannabis company specifically may require further insight.

The cannabis sector is budding. Since it’s a developing market, it’s safe to say that while some business courses will relate to these operations, this niche’s specialized nature demands more research. 

Here’s what we’re covering in this guide:

  • Cannabis startup costs and what to expect
  • How to write a business plan for a cannabis business
  • How to get financing for a cannabis company
  • How to start a cannabis business (step-by-step)

Make sure to check out our other post to learn more about cannabis dispensary profit margins.

Looking for additional guidance to budget and plan for your new cannabis operation? Contact us today to learn how we can help.

How to Determine Initial Cannabis Startup Costs

Cannabis business startup costs are essential to consider before investing time, energy, and resources into starting a cannabis business. Thus, it’s crucial to look over the potential initial startup costs.

Cannabis endeavors are usually more capital-intensive than other operations. Here’s what you should expect to pay for your initial cannabis startup costs:

Cannabis Licensing Fees

Cannabis licensing fees aren’t cheap. These costs vary at the state level, as well as the municipality.

For instance, cannabis licensing regulation in California has non-fundable fees between $1,000 and $5,000 per application. These fees can range in price depending on which license you’ll need, as well as which jurisdiction(s) you operate. For all local licensing or permit fees, you can expect the licensing fees to range from $10,000 to $12,000.

Cannabis Consultant Fees

Hiring a cannabis consultant is equally essential for new entrants to the industry. Cannabis consultants offer expert advice that facilitates structuring and operations.

Between licensing, company structuring, compliance, security, accounting, and other cannabis-specific needs, it’s crucial to have a trustworthy cannabis consultant on-hand.

While cannabis consulting companies exist, in some cases, it’s best to shop around for the best option for you. Whether you’re worried about excessive consulting rates or wondering about cannabis consultant pay, feel free to contact us at any time for a free consultation. 

Cannabis Insurance Cost

Every business has insurance needs per state demands. There’s a short list of cannabis insurance carriers, and they tend to charge a premium on account of the industry’s Federal status. However, a quick check of a cannabis insurance directory can be helpful.

Two cannabis insurance directories, Cannabis Business Executive and Ganjapreneur, are the go-to’s for canna-business operators. Each site offers a cannabis insurance directory where you can find the best cannabis insurance carriers and, hopefully, one that will fit your needs.

Cannabis insurance for supplemental purposes isn’t always an option. For instance, in California, canna-businesses must have at least $2,000,000 in commercial general liability insurance. The monthly premiums for insurance like this are usually from $1,2000 to $2,200.

Cannabis Business Operating Costs

Cannabis business operating costs can add up quickly. Between rent, security, marketing, interior, equipment, salaries, and other expenses, it’s best to know what to expect.

Your operating expenses will depend on what type of canna-business you’re starting. These could include:

Cannabis Real Estate Rental Costs

Cannabis real estate rentals, also known as green zone properties, are usually charged by the square footage. The price per square foot depends on the location and size of the cannabis facility. If you’re renting cannabis real estate in a less populated area, the expense drops significantly. But if you’re looking for a green zone rental in a city with high competition for these kinds of spaces, you should expect to pay exorbitant fees.

Green-zoned real estate is somewhat limited. With this being the case, many landlords charge premium rental fees for cannabis endeavors.

If you’re planning to open a dispensary in a large city like Los Angeles, the rent will likely cost between $7,000 and $9,000 per month. However, you can expect to pay more if you’re looking for a specialized location, such as a property on a well-known street.

Cannabis cultivation facility rentals tend to be even more expensive due to the additional square footage. For instance, if you’re looking for a 25,000 square foot facility in a city that’s close to a metropolitan area, you can expect to pay between $15,000 and $20,000 per month.

Cannabis manufacturing facility rentals don’t demand as much square footage. Since these are typically only allowed to operate in cities located away from densely-populated cities. With this in mind, you can expect rent to cost significantly less–likely between $3,000 and $5,000 per month.

Cannabis Staff Salaries

Cannabis staff salaries are essential to keep the business operating fully. Each canna-business requires specific skills depending on the operations. Some staff might need a GED and some certifications. But other positions could require Bachelor’s degrees or a Ph.D. With this being the case, salaries for cannabis staff usually fall into these ranges:

  • Bud Tenders: Bud Tenders usually earn just above minimum wage, ranging from $12 to $14 per hour.
  • Dispensary Managers: Dispensary Manager salaries generally have them earning between $50,000 and $60,000 annually.
  • Master Extractors: Master Extractors can usually demand between $60,000 and $70,000 per year.

Cannabis Business Marketing Costs

All successful endeavors have marketing costs, and cannabis is no different. In fact, many cities demand an outline of your cannabis branding and marketing plan when you submit your cannabis business license application.

Cannabis business marketing budgets ultimately depend on your business. If you have a smaller company, you might spend around $2,500 or more per month. However, larger cannabis business marketing budgets can demand millions of dollars.

Regardless of what you allocate towards your marketing budget, it’s crucial to remember that these expenses aren’t tax-deductible. We can thank Section 280E for that.

Cannabis Business Equipment Costs

The cost of your cannabis business interiors and equipment depends on the business you operate. For example, the costs of the equipment used for a massive indoor cannabis cultivation operation will be significantly higher than the price one would pay to build-out a dispensary. Extraction equipment can also be rather expensive. Ultimately, the price you’ll pay for your cannabis equipment will depend on two factors: what your operation does and it’s size.

Cannabis Business Security Costs

Cannabis business security costs should be considered too. All cannabis businesses are required to have security watching over the operation. This industry operates primarily on a cash-basis.

With this in mind, the amount of cash that’s dealt with on-site means it’s ideal to invest in security. This means your operation should have a plethora of security equipment (including but not limited to video cameras and safes) and a security team on-site.

For a specialized security agency, you can expect to pay between $20,000 and $30,000. But this could increase if you have special needs or a massive operation.

Community Outreach Costs

Community outreach is a crucial part of operating a cannabis company. This is how you can make your organization stand out from the rest.

While many canna-business operators tend to overlook outreach, states and localities usually prefer organizations that make it their initiative to improve the community. This means if you have plans to help the community, your organization is more likely to receive the appropriate licensing.

Consider creating a budget for local law enforcement programs and endowments, community programs, schools, and other community initiatives to show your organization is worth supporting.

Emergency Funds

All businesses should have emergency funds on-hand for unexpected expenses. This is especially the case for cannabis operations as an emergency could cost hundreds of thousands of dollars. 

How to Write a Business Plan for Cannabis Company Financing

Should you know how to write a business plan for a cannabis company? Only if you plan to start one.

But a cannabis business plan does more than keep your company on-track to succeed. It can be used to find funding for your operation, helping to cover the expenses we just discussed.

As you begin writing your cannabis business plan, keep these considerations in mind:

1. Provide Evidence You’ll Fulfill Your Cannabis Business Plan’s Claims.

Investors and anyone reviewing your cannabis license application will have to believe that you will fulfill your business plan claims. With this in mind, your plan should include proof. Include quantifiable evidence with verifiable data showing it’s legitimate. Conduct research, collect data, and communicate its relevance in your business plan.

2. Instill Trust in Your Cannabis Business Plan.

Establishing trust is a vital component of a marijuana business plan. The people reviewing your plan will have to trust that your canna-business is a solid investment. With this being the case, provide a clear explanation of what makes you the right person to operate this business and what will contribute to its success.

3. Incorporate Visuals in Your Marijuana Business Plan.

Visuals enhance a cannabis business plan by captivating peoples’ attention. This is how you should tell your story and get them interested in learning more. Include graphs, images, tables, and other visuals in your presentation.

4. Exhibit Professionalism as You Craft Your Cannabis Business Plan.

Regardless of the industry, investors expect a certain level of professionalism. Investors care about business and money, both of which are serious matters. Write and design your business plan to appeal to your audience with the professionalism they expect.

5. Make Promises You’ll Keep

Your cannabis license application reviewers and potential investors don’t want to see claims you can’t deliver. All of your promises in your cannabis business plan should be realistic. Between your goals, milestones, projections, and request for funding, everything should be substantiated by giving proof that you achieve goals and keep promises.

Cannabis business plans should include the following:

Executive Summary

Your executive summary should outline the contents of your business plan. Keep this section short, and make sure to highlight the key points that will matter most to your audience.

Problem-Solution Statement

Your problem-solution statement will explain what problem your business aims to solve and how. This will offer insight into the unmet or under-met needs in the market that your company plans to fill.

Market Opportunity Statement

Your market opportunity statement should include data showing the market size, growth potential, target customer segments, trends, competitors, and regulatory landscape. This section should also provide proof of the marketplace opportunity that will ensure your business grows and thrives.

Strategic Execution Statement

Your strategic execution statement will provide detailed plans for how you plan to take advantage of the opportunities you’ve already described. This should include timelines, milestones, and the metrics you plan to use to show your success in relation to your goals.

Marketing Plan

Here’s what your cannabis business marketing plan should cover:

  • Position: What makes your brand different from and preferable to the competition?
  • Product: What will you offer to solve the needs and problems mentioned earlier?
  • Price: How much will you charge for these products to dominate the market?
  • Promotion: How do you plan to promote your business to generate sales and revenue?
  • Place: Where will you sell your products and services?

Operations Outline

Your operations outline should offer insight to your facilities, technology, security, sales, distribution, staff, and equipment. You’ll explain the business’s physical space necessities to operate, including the specific property address if you’ve already obtained it.

Compliance Fulfillment for the Cannabis Industry

The compliance fulfillment section will outline how your business will remain compliant to operate legally in the cannabis sector. This segment must show you understand the regulations and explain how you will use proper standard operating procedures and staffing to remain compliant.

Company & Team Biographies

A winning team contributes to the success of a canna-company. With this being the case, this section should include all of the people who will participate in the business’s daily operations. List the biographies of your owners, team leaders, advisors, and key team members contributing to the expertise you need for successful execution.

Financial Plan

Since this plan might be used to secure financing, this is likely the most important section. Outline a detailed financial plan to include revenue forecasts, sources of capital, operating costs, budgets, projected balance sheets, projected cash flow statement, break-even analysis, and projected profit and loss statement.

Appendices

Your appendix should include more detailed spreadsheets and charts to cover additional financial information.

How to Get Financing for a Cannabis Business

Need help getting financing for a cannabis business? Contact us today to learn more about how we can help.

 

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