The Wise Cannabis Investor: Essential Knowledge Points For Success

by Gregory Frye

As crazy as 2020 has been, the cannabis industry is as relevant as ever. While other industries are contracting, U.S. cannabis retail sales are expected to rise 40% in 2020.

With new cannabis investment opportunities continuing to emerge, potential and current investors have a new advantage: learning from the mistakes of the past.

In the initial phases of the industry a lot of investors headed into the “green rush” with blinders on, with little understanding of the cannabis plant or what was needed to run a successful enterprise.

For any potential or current investors eyeing the cannabis industry in 2020 and beyond, due diligence and decision-making will now be much more practical and effective with Green Flower’s online courses and learning libraries.

If you want to avoid painful financial losses, make sound investments, and maximize your chances for success, there are several areas in cannabis where filling any knowledge gaps is essential.

For a much deeper, more thorough learning experience in all of these areas, please visit Green Flower’s newest offering, the online Investor Essentials Training.

The Wise Cannabis Investor: Areas of Focus

The History of Cannabis

Frankly, nobody should get involved in cannabis without at least a basic understanding of the plant’s history. This certainly includes learning the racist origins of prohibition, how the stigma came about, as well as prohibition’s various impacts on society.

Another important knowledge gap here is how different cultures used cannabis as medicine in the millennia preceding the 80+ years of prohibition.

Developing a working knowledge of cannabis history will enable investors to begin creating a solid foundation around the values they want to bring into the cannabis industry.

Cannabinoids 101

Cannabinoids are a big part of the plant’s ability to add value to people’s lives in different ways. Yet the knowledge gaps and misconceptions around cannabinoids are oftentimes astounding.

Understanding the true basic science, effects, and potential benefits of THC vs CBD is just the start. Other cannabinoids like CBN, CBDA, THCA, THCV, and many more, all have a place at the table, even though most people don’t know it yet.

Learning cannabinoids will help investors better see just how significant cannabis is as a medicine and wellness product.

Delivery Methods & Products

Flower, oil, vapes, topicals, edibles, capsules, patches, tinctures, etc. – the nuances around different products and delivery methods can be overwhelming at first.

Cultivating a working knowledge of all these options at the investor level, however, is critical when deciding where to focus and making informed decisions on which cannabis products or companies you want to back.

Quality Control & Assurance

With no FDA oversight, quality control and assurance are lacking in parts of the cannabis industry, which makes this a pivotal opportunity for investors who want to help build sustainable businesses.

“As you’re bringing your product to market it is imperative that you have your quality control processes in place,” says Kimberly Dillon, who helped scale the cannabis products company Papa & Barkley into a $30-million business and now runs her own consulting firm Plant & Prosper.

Manufacturers need to be able to detect and prevent product defects while adhering to clearly defined standard operating procedures.

Ensuring that cannabis products are safe, clean, and reliable is of utmost importance for medical patients with compromised immune systems as well as for customer retention.

Careers In Cannabis

Learning about the breadth of career opportunities in cannabis is a great way to better understand all the different sectors in the industry, which the average person doesn’t really think about.

This includes areas such as patient care, tech, marketing, security, product development, tourism, distribution, real estate, finance, legal, management, manufacturing – and so much more.

What’s more, the success of the cannabis industry somewhat hinges on filling these different career opportunities with experienced professionals coming in from other industries and new generations entering the workforce out of university.

In both cases cannabis education and training are the key to enterprise-level success.

The Business Of Cannabis Cultivation

Cannabis cultivation can be a fantastic entry point for many investors – whether that’s backing small, craft cannabis grows or giant, industrial-level operations.

Either way, investors will want to develop a keen understanding of how the cultivation business works.

Some of the vital knowledge points here include how much capital is needed without the support of federal or bank lending, cost-benefit analysis of indoor versus outdoor grows, harvesting operations, key employee roles, how to scale a cultivation business, as well as the nuances of seed to sale, distribution, compliance, and much more.

Bottomline: understanding how a successful cannabis cultivation setup works will help investors avoid common pitfalls.

Cannabis Processing & Manufacturing

Processing and manufacturing have quickly become a pivotal sector as more consumers opt for extract-based products (i.e. topicals, edibles, oils, topicals, vapor cartridges, etc.).

And yet, this is another area in cannabis where there is a lot of opportunity for top-to-bottom improvement. According to Dr. John A. MacKay, one of the top extraction advisors in the world, a lot of cannabis processors have extremely inefficient processes, and sometimes it seems no real process at all.

MacKay sees these inefficiencies firsthand when consulting for cannabis operators:

“I’ll watch them bring in plant material from one end of the building, then cross paths over to another side, then cross paths again to another side, then take it out and put it somewhere else, and you’re just watching this and it looks like one of those cartoons where the people are chasing each other. And that’s before they even take one sample! It is so rare to find someone actually monitoring their process.”

MacKay, who has 45 years in botanical extraction, analytical testing, and purification techniques, emphasizes that cannabis extraction is not an art but a science.

“There’s no magic; there’s no secret formula; there is no artist in extraction – only the ability of knowing what the theory is and applying it to your processes. And therefore, you can have different processes and unique processes and patented processes, but there’s no art. It’s not a painting.”

For investors looking to underwrite or buy struggling cannabis businesses, a working knowledge here will no doubt further the chances of success.

Cannabis Lab Testing & Analytics

Lab testing and analytics fall in line right next to these other areas. Understanding what is in a cannabis product of any kind is important for processors, retailers, physicians, and consumers.

Cannabis investors will definitely want to develop a familiarity in this area, not only because it’s usually required in legal markets but also to spot fabricated lab testing and analytics, which could harm or compromise their investments in more ways than one.

Cannabis Retail

Cannabis retail is where the rubber meets the road in the industry, and like every other area in the cannabis world there are plenty of nuances, which investors will want to know.

Issues like compliance, setting up a retail space, and making sure dispensary staff are appropriately trained – all critical areas with plenty of opportunity for improvement in this emerging industry.

The Business Of Cannabis Distribution

Investors will not want to overlook this segment of the cannabis supply chain.

Proper strategy and guidance are essential if you want to avoid catastrophic failures in distribution, a space which can get intense and messy without the proper processes in place.

“Where distribution was difficult in the past – marketing, sales, logistics, all of the transports, and everything that you have to take into consideration – today it’s that much more difficult because compliance in itself is a full-time job for at least a couple of people,” says Avis Bulbulyan of SIVA Enterprises.

“And most people that get into distribution here, from the industry side of it, they just don’t have an understanding of the compliance requirements.”

The Business Of Industrial Hemp

After the passing of the 2018 Farm Bill, the hemp world has become all the more exciting for investors. One of the things that makes hemp so exciting is all the different applications in which it can be used toward environmental sustainability.

Hemp plastics, hemp fuel, textiles, and building materials are just a few of the promising opportunities in this area – as well as the fact that hemp seeds are one of the top superfoods in the world.

This is a growing sector where more investment dollars are needed, and it starts with getting educated on the opportunities, challenges, and nuances of the hemp industry.

Obtaining Licensing In The Cannabis Industry

Are you looking at cannabis investments that require a license to operate? The licensing framework differs from one market to the next. Some of the key learning points here include types of licenses, state versus local approval, vertical versus horizontal licensing, the application process, competition for licenses, buying a license, and much more.

Jay Czarkowski, co-founder of Canna Advisors, has essentially mastered the process of winning a competitive cannabis license with more than a decade in the industry.

In addition to understanding the ins and outs of obtaining the license itself, Czarkowski expresses words of caution for those who do acquire their cannabis license:

“Most people pretty much universally always underestimate how much work it’s going to be after they’ve got the license, and how much money they’re going to need. So a lot of groups win the license, and they’re actually ill-prepared to move forward,” he reveals.

“The amount of time and effort that it takes to build a business is a lot of work. A lot of people think, ‘Marijuana means money up to my elbows,’ but no. Most of these businesses fail, just like any other industry.”

Securing Real Estate For Your Cannabis Business

Obviously, a cannabis business can’t operate without real estate. Yet, real estate can be a significant challenge due to ongoing concerns of the plant’s continued status as a Schedule I Controlled Substance.

To gain an upper hand here, investors will want to understand regulations, supply chain factors, options around renting versus purchasing, leasing, and financing.

Regulatory Compliance In The Cannabis Industry

Compliance is no doubt one of the most challenging areas in achieving a successful, sustainable business in the cannabis industry.

Investors will want to understand all of the compliance issues and how they differ between states and localities.

Requirements in safety, advertising, labeling, transportation, testing, and inventory tracking are just a few areas of the regulatory landscape.

Mistakes in compliance could result in costly fines, suspension of license, and other punitive actions – which makes it an important knowledge area not just for investors but for the entire operation.

Sales In the Cannabis Industry

Nothing happens until somebody makes a sale! If you want to protect your cannabis investment, you’ll want to make sure the sales team is 100% dialed in.

Knowing the target sales market, knowing the industry inside and out, knowing how to win the trust of buyers and clients, knowing how to onboard an account, plus how sales in cannabis differs from other industries – these all sound obvious yet many sales teams in the industry simply don’t have this scaffolding in place.

Accounting Principles In The Cannabis Industry

According to Simone Cimiluca-Radzins, CPA, more than a few cannabis companies are unorganized here.

She has observed unfortunate patterns in the accounting and finance departments of many cannabis operators – namely a lot of confusion, common mistakes, and missed opportunity.

“Most companies are coming in ill-prepared from an assistant setup standpoint,” Cimiluca-Radzins reveals. “I worked with a company that received more than $2 million in investor funding, and we came in because the investors were like, ‘Where did the money go?’ Lacking systems is something a large majority of the businesses seem to face.”

Human Resources & The Cannabis Workforce

In June 2018, cannabis analytics firm Headset reported that 58% of dispensary workers did not make it past their first two months, and 40% didn’t even reach one month.

These numbers are alarming, to say the least. A lot of cannabis companies struggle to find the right talent and they struggle to keep that talent.

Behind these numbers is a narrative that shows us another opportunity to improve the cannabis industry, in this case around human resources and the workforce.

Many cannabis operations simply don’t have a human resource solution in place. Employee onboarding, employee relations, investigations, and discipline are oftentimes overlooked rather than a guaranteed function.

“There is a huge knowledge gap [regarding HR], and they just don’t have the time to dedicate to this important function, and oftentimes we just see things missed,” says Lauren Spagnuolo, SHRM-CP and Account Manager for Wurk, an outsource HR solution for cannabis companies.

Overlooking these important HR aspects, cannabis companies set themselves up for all sorts of potential risks – definitely a vital point of awareness for investors in the space.

CBD: Products, The Legal Landscape, & Business Opportunities

Much like the hemp world, CBD can be a confusing area to operate with so much uncertainty around pending regulations and gray market products.

Yet there is a lot of business opportunity here, which investors will want to study up on: CBD processing, manufacturing, distribution, and marketing – all different than cannabis.

Investors interested in CBD can also bolster their chances of success by understanding the different products and formulations, as well as the pending issues with the 2018 Farm Bill.

This is why, even though CBD is a hot investment area, investors also need to familiarize themselves with the corporate structures and legal protections in CBD today.

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If you want to compete in the modern cannabis industry, you need to foster a holistic understanding of the space. The Cannabis Business Essentials Program will teach you the enterprise side of every major cannabis sector across the vertical.

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