You Need a Cannabis Business Plan

23 Sep You Need a Cannabis Business Plan

By and large, cannabis businesses are small businesses. We’ve represented hundreds of these businesses over the years, in many states. Within these businesses one finds many kinds of people. They include legacy operators transitioning from traditional markets, to well-heeled investors coming from industries like banking and private equity. And everyone in between.

Of course, performance has been mixed. We have clients we’ve worked with regularly for five or six years here in Oregon, for example, but we’ve also seen many clients fail. Some mistakes and circumstances can be overcome; others not so much. When a cannabis business goes off the rails it can happen for any number of reasons. Sometimes these are market factors or plain old bad luck, but the longer I do this the more I’m convinced that a leading cause of pain is poor business planning. Or, no real planning in many cases.

I’ve come across extreme examples of this, like people saying “I didn’t realize we’d have to pay so much tax” or “the state rules didn’t actually allow for our model.” Others are destined to fail from the start. But mostly, the businesses I’ve seen knuckle under for lack of planning are people who had some energy and/or capital and/or vision, but didn’t sketch things out or give ample consideration to the boring parts of running a company. And some of it is pretty dull to be honest.

If I were starting a cannabis business today, I’d do lots of research and then I’d put together an A+ (or at least an A or an A-) business plan. Now, please note that a business plan is different than a business idea or a goal or even a forecast. A business plan is commonly described as an actual written document describing core activities, a company’s objectives and how it plans to achieve them. Typically, a business plan would include an executive summary, an overview of products or services, marketing analysis with strategy, financial planning, and key budget elements. People get fancy and talk about “the four types of business plans” or “the five [or seven or ten] elements of a business plan”, but the basic idea is to cover the areas I’ve mentioned above in a thoughtful and realistic manner.

I realize that all of this probably sounds obvious, dull and pedantic, but I’d make myself go through this exercise nonetheless (and I say this as someone who doesn’t love details and isn’t risk averse.) Ultimately, I’d do this tedious work for a whole bunch of reasons, with the top three outlined below.

Force Yourself to Think About Things You Don’t Want to Think About

When you have a big idea (like starting a business), it’s pretty exciting. Because it’s pretty exciting, it’s easy to discount factors that may be obstacles or ignore them altogether. You may have a truly brilliant product formulation or an ingenious services approach or a fabulous X or Y or Z, but execution is a whole ‘nother thing. Execution is HARD. Ask these bleeding behemoth Canadian firms, or your local mom-and-pop grow site, or the myriad financiers who have fallen flat after crushing it in other industries. It’s really hard.

Sometimes, we lecture people on this blog about the need to write things down and adopt agreements and such. For whatever reason people may view exercises like adopting an LLC operating agreement or structuring an ESOP to be difficult or intimidating. They shouldn’t be. Cannabis business lawyers can help you through most of that, which is standardized to some extent in the industry. I believe that relatively speaking, that stuff is easy. What is not easy is developing a SKU that people will really want to buy, getting it made, getting it in front of customers, paying people to help you to do that, etc. That stuff is hard. And you need to plan for every step of that process– including conservative estimates of how long it could take and what it should cost.

Help Your Business Get Funded

I love a good plan and a good deck, too. I’ve seen many, many pitches at this point and I can tell you that shiniest ≠ best. Sometimes, it feels like there is an inverse correlation between deck sheen and the chances of business success, in fact. Insipid decks may trot out a few charts and graphs, cover the projected market size of cannabis in a few years, and often lean heavily on gussied up bios of a few individuals. No meat. No gritty information with respect to budgeting, costs, timelines, etc. Conversely, a well-built deck with adequate market research, realistic planning budgets, reasonable forecasts — essentially, a “business plan”– can sell to sophisticated investors who basically have limitless options right now.

Help Your Business Start (or Not) and Hopefully Grow

A well wrought business plan is also a checklist of sorts. Generally speaking, things need to happen in a certain sequence to get a business up and running. Some of these tasks or deliverables are conditions precedent to others (i.e., you may need a license prior to getting a bank account; you’ll need an EIN to run payroll, etc.), but others can run concurrently. Because of time compression, cash bleed and the need to avoid sitting on unproductive assets, a business owner must be able to walk and chew gum. Charting out everything that needs to happen, and when and how, is an underrated exercise. It will also help a business expand much more quickly– in part by locking in milestones and giving objective performance data in the form of targets hit or missed.

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So that’s it. To learn more about putting a business plan together, the best person to talk to is probably not a lawyer, but others who have done this before. The SBA has some pretty good online learning programs, or you look into industry-specific facilitators and accelerators. Some of these providers have the added benefit of focus on select populations, like female or social equity entrepreneurs. I’m convinced that building a business plan is never a bad thing, and if a business ultimately washes out, it’s some consolation to know it wasn’t for lack of planning.