Thinking of starting your own edibles company? From bakers to chefs who produce high caliber desserts to die hard entrepreneurs cultivating their own cannabis, there are plenty of opportunities for those looking to get in on the action. Before diving in and launching your own edibles business, however, it’s critical to do your due diligence and research the current and anticipated regulatory climate. Even though there now quite a few established brands, the industry is still young and there is plenty of room for prepared entrepreneurs to establish a household brand.
Understand the state's and local ordinances in play
The Medical Cannabis Regulation Safety Act (MCRSA) was signed in 2015 by Governor Jerry brown and is comprised of 3 separate bills written to license and regulate commercial medical cannabis cultivation, manufacturing, distribution, transportation, sales, and testing.
MCRSA regulates California’s marijuana industry that will not be enforced till 2018 and will require business owners to acquire local permits before qualifying for a state license. Some cities like Los Angeles, for example, do not offer local permits, so it is critical to check with the local government ordinances where you wish to operate before going any further. In addition, the AUMA or Prop 64, has passed which establishes 19 different license categories parallel to those in MCRSA, covering cultivation manufacturing, testing, retailing and distribution. Licenses for adult use facilities are distinct from those for medical facilities issued under MCRSA.
It is important to note that cannabis is federally illegal and cannot cross state grounds. If you are in California, you can ONLY in California. The only way to move across states is to license or franchise your brand. Lastly, you may also be subject to federal raids although the state governments are working hard to minimize this. We’ll cover these topics further in future posts.
Find a good location to setup shop
After grasping the risks and regulations facing cannabis businesses, it is now time to find a location from which to operate. Keep in mind zoning laws which dictate the minimal distance you have to be from places such as schools. Prematurely selecting a location without being cognizant of day care or school locations can result in plenty of wasted funds, fines and / or jail time. Also, the location should be accessible to you and your personnel and have the right amenities so that your staff can work happily for long periods of time.
There is also a new legislative development in California that has relaxed rulings on asset forfeiture that has plagued cannabis operators who were caught growing or manufacturing illicitly, but that doesn’t mean you should take being legally compliant any less seriously.
Consider your expenditure
Starting an edibles company isn’t cheap, but the good news is that it is LESS expensive than opening a dispensary. You will have to consider an assortment of fixed and on-going costs including:
- Infrastructure / kitchen equipment
- Material sourcing
- Staff
- Brand development
- Marketing
- Rent / property
- Testing
- Packaging
- Software
Thinking of getting a business loan? Guess again. Most banks won’t touch your business due to the risks involved. However, there are investors out there looking to get into the game. If you happen to connect with an investor, go the extra mile to ensure them that you have carefully planned for this venture and build credibility however you can. There are also accelerators out there that offer new companies access to office space, legal help, mentors, investors and startup know-how in exchange for a small amount of equity. Please note that accelerators are competitive to get into and run for 2-4 months or longer (each one is different). Your best bet is to talk to existing companies in accelerators and seek advice on how to get in.
Don’t forget to plan for the staff you’ll need for everything from social media marketing to cooking to packaging. Create a spreadsheet and write some associated costs for what you think it will take to get you growing and you can add to it over time.
Find a source for cannabis
One of the best ways to find a consistent source for cannabis is to go to cannabis-specific events and conferences and meet cultivators and manufacturers. Be sure to look for someone reputable who will provide you quality flower as you need it. The reality is, however, that most companies will use whatever they can get their hands on: trim, flower, shake etc. You can also search for these on wholesale marketplaces and buy in bulk.
Whatever you do, make sure you’re getting a good deal and not being ripped off. With prices expected to plummet during supply gluts, you can figure out optimal days to buy to make sure you’re getting the most bang for the buck.
Setup your infrastructure
Edibles production requires having a kitchen setup in a certain way and stocking up with enough ingredients depending on whether you want to create butter, chocolates, beverages or a plethora of other types. You will need to consider if your products require refrigeration or not and expiration dates, or if you bake then you may need a commercial kitchen.
Alternatively, you can work with co-packing companies who already have an infrastructure setup, can create edibles for you, and package it up with your brand!
Develop your brand identity
Companies have started spending large on packaging resembling high-end products you find in your typical stores, using their labels to subvert the stigma of hippiedom and cross the chasm into a new era where older and professionally established users are the target market.
Although logos do not warrant such scrutiny, one must be very mindful of packaging laws. Due to the tricky nature of consuming cannabis-infused cookies, candies and other delectable treats, consumers are wary of what they ingest. In Colorado, for example, childproof and resealable packaging is very important.
In addition to packaging, you’ll want to secure a website that creates transparency for your brand and product line(s). You can easily create your own site using Squarespace or Wordpress (or a number of other tools out there), or you can enlist a designer from a freelance site to help you.
Setup distribution channels
Most brands will start by visiting dispensaries and convincing them to stock their products to get some initial feedback. Once you confirm that your product will garner demand and you have your production established, the next challenge to solve is distribution: how to get your product out there where consumers can start buying. There are a few factors to consider when planning distribution:
- Identify what type of dispensaries and delivery groups you want your product stocked. Not all dispensary and delivery groups are the same and they often have different customer bases. Identify your brand positioning and create a list of your ideal consumers.
- Find distributors who can expand your reach. There are a few aspects to finding the right distributor you need to consider such as how much supply they need from you, how they will store and ship your product, which areas they reach and don't reach, how they will represent your brand, what other brands they carry, what their cut is and so on.
Once you establish some dispensary sales yourselves and/or work with some distributors, you will want to make sure that your product is delivered consistently and it's being presented to consumers properly. This comes down to you doing some legwork and going into the dispensaries with your product stocked to see what the end result looks like to your consumer.
If you'd like to learn more about distribution, drop us a line at hello@distru.com for a free consultation.
Prepare to hold cash
Banking for cannabis companies is complex. No federally insured bank will accept cash for marijuana businesses, but there are some pilot programs happening under the FinCEN guidelines. It will take some time for regulations to mature so for now be careful in how you plan to keep your money.
Select software to manage your operation
You will need software to automate and manage critical aspects to your business such as:
- Customer Relationship Management
- Inventory Management
- Order Management
- Task Management
- Accounting and Payroll
Whatever tools you select will need to be connected together in someway in order to automate your processes or you may end up spending a lot of time with double data entry and human errors. Alternatively you can use software that enables you to manage your operation and stay compliant with Metrc from one tool like Distru
Good Luck!
- The Distru Team
