2023 just started and the United States now has 21 states with recreational cannabis markets. Of those 21, 12 states are emerging markets. What’s funny is when looking at a map, one realizes it is divided by the West and East coast. The East Coast’s first strong market was Massachusetts, who now has just over a $3 billion-dollar cannabis industry in 4 years.
Entering these markets is not only exciting, but also enticing given the significant rise in revenue and consumer attraction. However, entering the market is not as easy as some may believe, and it should not be underestimated how demanding managing a start-up should be.
Here are three things one needs to know about entering an emerging market:
- No industry social scene is alike, so RESEARCH!
This may be a no brainer – BUT – the East Coast is drastically different from the West Coast. While in the West Coast the industries differ from state to state, the overall acceptance of legalization has had years to adjust, and West Coast residents now don’t bother to take a second glance if you happen to be smoking a joint before going to see a movie.
The East Coast is just now hitting the surface of legalizing in numbers like the West Coast. Due to that, there are still many individuals who judge or are completely against cannabis in general. So, whether you are thinking about entering your home states market or another’s, make sure to research the municipality and state social scene in terms of cannabis acceptance.
A cannabis establishment with its community’s support is likely to be more successful in the long run.
- Research municipal cannabis zoning laws and decide whether you want to lease or buy property.
This also seems like a no brainer. Unless someone is currently active in the cannabis market, one will not truly understand how difficult it is to come across property that is worth just settling for.
When looking for real estate options are drastically limited due to zoning districts, buffer zones, and cost. Properties can range anywhere from $500,000 (if you’re lucky) to well over $2 million dollars. Unfortunately, traditional loans are not available for a traditional mortgage, so unless you can buy property outright, the majority must lease their property. Leasing also has its own concerns as many times landlords inflate their rates when realizing it is for a cannabis establishment.
This leads me to my last point…
- Start-up costs can range anywhere from $500,000 – $3,500,000 so begin saving and raising money as soon as possible.
Unlike any other industry out there, the cannabis industry faces many financial barriers because of its federal illegality. Traditional business loans are not available and cannabis establishments are subject to 280E therefore not reaping traditional business tax deductions as well.The industry faces issues with Multi-State Operators monopolizing markets, making it very expensive to compete with them and the overall start-up process can cost anywhere from $1.5 million to $8 million dollars. These financial barriers can make it difficult, if not impossible, for those impacted most by the War on Drugs to participate in the market that is meant to benefit them.
The sooner you can begin raising capital, the better. It is NEVER too early to start.
Overall, just like other industries, the cannabis market is not perfect, but much of its imperfections can be alleviated the more legalization efforts are pushed. While there are other barriers, these may be the top three to be aware of.
Reach out to Greenlight Business Solutions to learn more about how we can help alleviate the application process.