Scaling a cannabis business is a challenging yet rewarding journey. As the cannabis industry continues to evolve and grow, businesses must navigate complex regulations, changing consumer preferences, and fierce competition. Ideally, the goal of a cannabis business is growth. However, many cannabis businesses stifle their own growth by making cannabis business mistakes.
Understanding common cannabis business mistakes and utilizing the right cannabis business growth strategies will help position your cannabis company for growth and success.
Overlooking Regulatory Compliance
Perhaps one of the biggest errors a cannabis business can make when scaling operations is not understanding the fluidity of compliance. The cannabis space is heavily regulated, and compliance laws vary by state and even locality. Conformance in one market can very well be contravention in another. A common error is to not properly budget for ongoing legal advice and regular compliance checks.
- Inconsistent Monitoring: Compliance does not stand still. A common cannabis business mistake is to think of compliance as a milestone rather than a continuing effort. This can have serious ramifications, including fines, suspension of licenses, or even revocation.Â
- Incomplete Documentation: Another common error is poor documentation. Everything a business does and tracks, from seed-to-sale record keeping to financial records, needs to be documented accurately. Few things present as many challenges with audits and due diligence, and ultimately hinder the scalability of a cannabis business, than a lack of proper records.
Inadequate Financial Planning and Management
Financial mismanagement is another common cannabis business mistake. The federal prohibition of cannabis cripples cannabis businesses with limited access to traditional banking relationships and tax laws such as IRS Section 280E, which disallows regular business deductions. This sets profitability back by a huge margin.
- Cash Flow Problems: Since most cannabis businesses are cash-only, they face security risks and high costs associated with cash transport. Businesses must develop cash management systems and search for cannabis-friendly banking options (if available).
- Not Preparing for 280E: Most new businesses don’t account for the tax implications of 280E. The high taxes imposed by 280E can be detrimental to profit margins and can also affect the ability to reinvest for properly scaling cannabis businesses.
Neglecting Supply Chain Optimization
A supply chain that underperforms can cripple a burgeoning cannabis brand. As a cannabis operation scales, any bottlenecks or underperformance in the supply chain become exponentially greater leading to both higher costs and product challenges.
- Inventory Control: Inaccurate inventory management can lead to overstocking or understocking. The use of sophisticated systems that provide real time inventory tracking are essential to properly scale a cannabis brand.
- Logistics and Distribution: The movement of cannabis products is very complex and highly regulated. Opening and developing supply chain logistics that are security, compliant, and efficient across multiple jurisdictions provide significant challenges for cultivating a cannabis business.
Underestimating Marketing and Branding Challenges
Marketing and branding are critically important in a crowded marketplace, but many cannabis companies make cannabis business mistakes in the area. Traditional marketing avenues are often limited, restricting brands and forcing new approaches to develop compliant marketing messages. Here are several issues to consider:
- Nonspecific Messaging: With little or no brand identity and story, businesses often struggle to connect with consumers. A strong brand story cultivates trust and loyalty.
- Digital Marketing Issues: There is no point solely relying on traditional marketing. Businesses need to adopt SEO, build quality content marketing strategies and engage with compliant social media to reach the target market legally. Check out our page to see why we are committed to quality.
Failing to Adapt to Market Trends and Consumer Demands
The cannabis industry is fluid, and thus susceptible to change every day. New consumer wants and needs and new product trends are developed, often in the blink of an eye. Brands that don’t innovate and adapt quickly run the risk of becoming extinct. Tracking the cannabis industry and adjusting to it as it evolves is a critical part of a successful growth strategy for cannabis operators.
- Not Diversifying Product Offerings: Offering only a limited number of products in a limited number of categories restricts your market potential. Diversifying from a small product selection to a variety of more popular categories, such as edibles, concentrates, or new-age cannabinoid products (i.e., THCA), opens up substantial opportunities for revenue diversification.
- Not Keeping Up-style Consumer Insights: If a cannabis operator does not invest substantial sums of money into research to report and analyze on trending and emerging trends, it puts their business model in serious danger. When a market is evolving so quickly, data-based decision-making is critical to build and maintain a sustainable competitive advantage and ensure the feasibility of scaling a cannabis enterprise long-term.
Paving the Way for Sustainable Growth
Steering clear of these common cannabis business pitfalls is absolutely vital for any company looking to achieve high quality cannabis business growth. By focusing on strong regulatory compliance, financial responsibility, safe and accurate supply chains, smart marketing, and continual change and evolution, businesses can build a strong base to scale a cannabis brand. The road to growth in this industry is tough, but not impossible, with detailed planning and execution.
Are you ready to elevate your cannabis operations and build sustainable growth? Contact us today to learn how Passion Farms can support you with the highest quality cannabis products and unparalleled insights!
