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A recent Time article titled “The Economics of Legal Weed Don’t Work” draws attention to the costs associated with playing by the rules and operating a legal cannabis business, but we think legal cannabis has “winner-takes-all” potential.
“The Economics of Legal Weed Don’t Work,” written by Belinda Luscombe, is a condensed version of Ms. Luscombe’s interview with Daniel Sumner and Robin Goldstein, both of whom are leading U.C. Davis economists and the authors of the newly released book, “Can Legal Weed Win? The Blunt Realities of Cannabis Economics.”
The credibility of Mr. Sumner and Mr. Goldstein’s resumes, combined with their relatively unbiased perspectives, provides expertise and insight into potential dangers and struggles unique to owners and operators of legal cannabis businesses. Their analysis serves as a valid warning, particularly in their characterization of the legal cannabis business as an exercise in patience, or a “marathon-not-a-sprint” business model.
But slow and steady wins the race, and where the article’s analysis of the legal operation prematurely stops, the opportunities begin.
A standard way to forecast future success is to study past consumer habits and the accompanying response in the market. Ironically, even though historians believe cannabis was one of the first plants to be cultivated by mankind, we have essentially no historical data or trends to rely on when studying the relatively new market of legal marijuana. Further, no other industry can serve as a sufficient, comparable aide given the complicated history and unique nature of cannabis. Simply put, there is no other product like it.
Therefore, entrepreneurs must rely on long established, reliable business practices to identify and collect relevant information and to utilize their findings correctly in order to make strategic and informed investments and other major business decisions.
An added benefit, as a product of this higher-level analysis and sophisticated understanding, a business owner will have the tools to operate their legal cannabis business efficiently. Efficiency and an infrastructure capable of bolstering refined systems and processes serve as the counter to the points argued in Ms. Luscombe’s article.
Starting a legal weed business comes at a price.
As the Times article observes, “having the resources to get into this business is way more than just no longer being officially considered a criminal.” Starting a legal cannabis business requires successfully navigating complex approval processes and meeting strict regulatory requirements. A business owner may need the approval of four or more different government agencies. Each of these gatekeepers comes with a fee. Application fees, permits, and even large payments made to make a business compliant with various regulatory standards total an intimidating cost of admission.
In addition, the complex licensing processes, and variable, individual state procedures can be lengthy and tedious. As the saying goes, “time is money.” A business could continue incurring ongoing operational costs, for example in the form of lease payments or staffing, while at the same time being unable to start operations and to generate any income due to a delay in the approval process.
But the right partner can help overcome these challenges. BeGreenLegal’s team of experts helps business owners through the entire licensing process, satisfying lengthy state requirements and navigating the nuances of getting approved locally.
BeGreenLegal simplifies complex, strict regulatory requirements, saving entrepreneurs the time it would take to become familiar and comfortable with navigating these roadblocks. The BeGreenLegal team’s expertise allows businesses to rest assured that they have properly and successfully submitted the required applications, thereby avoiding the risk of having an application denied and preventing the costly delay involved in the reapplication process.
As an added benefit, BeGreenLegal also offers advisory services to companies in the beginning states of their business development plans, analyzing every angle and unearthing all risks and opportunities in order to maximize each client’s potential profits. BeGreenLegal’s Market Analysis is designed to help entrepreneurs fully understand their customers and their market so they can make informed business decisions and can invest in the right products and services.
It’s more expensive to operate a legitimate business.
Time’s article also reads somewhat like an Aesop cautionary tale, suggesting that illegal cannabis would be easier and would potentially lead to more money. The article provides various examples of operating costs and requirements burdening the businesses operating legally, including labor regulations and pesticide regulations.
However, what the Time article fails to capture is that membership in the legal cannabis market has greater potential for future competitive advantages. Operating in the legal market allows for the option of expansion and the ability to grow the business when presented with the opportunity. This growth opens the door further to potential economies of scale.
Furthermore, a critical part of any business operating in a regulated industry is a first-rate quality management system. Proper quality management reduces inefficiencies in document control and record keeping, and lowers the risk of product defects, all while increasing customer satisfaction.
BeGreenLegal’s Quality Management System (QMS) provides a structure for seamlessly monitoring regulatory requirements and for meeting such requirements without error. BeGreeenLegal’s QMS also provides resources that enable companies to identify potential issues, and then once those issues are identified, the QMS outlines product quality and action plans to take corrective and preventative actions against such issues. While illegal cannabis operations are left vulnerable to unexpected threats and to late detection of product issues (not to mention actions by law enforcement), a legal cannabis business model can utilize superior systems—such as the one offered by BeGreenLegal—that allow it to adapt with minimal disruption or harm.
As a final advantage, risk management is another key component of BeGreenLegal’s QMS. BeGreenLegal’s risk management program includes processes and monitors that ensure overall quality control. These processes remain in place during product development and manufacturing changes and are vital to the ongoing business operations and the production of any legal cannabis grower.
Customers are not going to change products even if the other product is legal.
Time’s article warns that American adults are still choosing to buy illegal weed. They state that customers who have been purchasing the same illegal product for a long period of time are demonstrating brand loyalty and are choosing to remain with their familiar dealer.
But, the real issue is the cost. The price of illegal cannabis is lower than the amount dispensaries have to charge to make a profit on their legal product. The application fees discussed above, taxes, and other necessary costs of retaining status as a legal operation all show up on the price tag.
Legal cannabis businesses must use the resources available to them, taking advantage of market analyses and learning about existing resources for streamlining their efficiency, such as standard operating procedures specific to cannabis. By seeking the advice of a cannabis operations expert, a legal business can take advantage of cost saving measures and reduce the gap in price offered by its competitor in the illegal market.
In addition, as cannabis continues to settle into the mainstream, buyers will start to develop stronger preferences, and demand for high quality, even luxury, product offerings will grow bigger. Legal cannabis businesses have the systems in place to not only offer but guarantee such an exclusive option.
Finally, consumers are showing a heightened awareness of the risk, and real danger, of purchasing cannabis from illicit markets that are unregulated. As this concern grows, consumers are realizing the value of paying more for a product that they can rely on to be safe.
The obvious choice is the safer option, which also happens to be the legal option.
The message of Time’s article is that the cannabis industry is inherently more favorable for illicit markets. The article argues that legal cannabis businesses are unable to compete with the cost savings available to illicit operations.
But further evaluation and deeper analysis actually reveals a starkly different takeaway: by utilizing an advanced business model that capitalizes on sound strategies, advanced market research, and effective business practices, legal cannabis operations can overcome the short-sighted, albeit attractive, features of the cost model of operating illegally. And in an ironic final twist, legal operations can turn what at first appear to be discouraging barriers to entry into competitive advantages, realizing a greater potential that their illegal counterparts simply cannot attain due to their illicit nature.
If you need an additional sign that opportunities for legal cannabis business owners are forthcoming, for the first time in its history, Forbes is featuring a cannabis executive on the cover of its latest issue.
What’s next for someone invested in legal cannabis?
Whether you want to improve productivity or scale to the next level, now is the time to button up your systems. Contact BeGreenLegal for help streamlining your SOPs to look more attractive to investors, produce better yields, and get better ROI. https://www.begreenlegal.com/contact-us/
