Whether you are starting up a company for the first time or you are a serial entrepreneur, someone in your company will inevitably ask: “Should we write a business plan?” At this point, many might grumble and opt for the group to pick straws to determine who is going to write it. Simply put, a business plan is no easy undertaking. It requires a considerable amount of time spent researching your industry, scouting the competition, identifying your market, setting realistic milestones, establishing key value proposition, structuring company management, forming financial projections…the list could go on forever.
For better or worse, a business plan is absolutely essential. Not only does it improve your company’s internal operations by setting tangible goals for your team, it also validates your company from the perspective of investors, real estate companies, and the other business relationships key to your company’s success.
Do you think any of these parties enter into long-term business relationships with just
anyone? Not a chance. They want to know that you are not just acting on gut feelings and are going to simply wing it. Much like qualifying someone for a romantic relationship, they seek a company that takes itself seriously and has its ducks in a row. The easiest way for them to assess this professionalism is by asking for a business plan.
Even as cannabis inches closer each year to the end of prohibition, the “reefer madness” stigma and stoner stereotype still remain for many people -- and some of these people could be key to the success of your cannabusiness. This is why demonstrating your professionalism and overcoming stereotypes that work against you is more important than ever in this industry. And it all starts with a business plan.
At California Cannabis CPA, our team of professionals help entrepreneurs entering and thriving in the cannabis industry create business plans, optimize revenue, and navigate the ever-changing landscape of the marijuana industry. For that reason, we’ve created this simple outline to help you raise your first round of funding for your company.
The legalization of recreational marijuana in numerous states has created a market and a great investment opportunity. Once federal law is liberalized to allow wider use of cannabis, which is the direction current developments tend to lead to, this is going to be a sunrise industry with huge growth potentials. This section will describe the overview of your company, and what you’re trying to accomplish. For those investors who aren’t familiar with the cannabis industry, it might be important to include polls showing the growing demand for legalization of cannabis.
This business plan reflects a desire to mine the wider legalization of recreational marijuana for the launch and growth of a cannabis-based business. The goal is to participate in and profit from activities in the various sectors of the industry---biotechnology, cultivation and retail and consulting services.
The plan will be carried out in two phases. Phase I focuses on the particular states that have legalized marijuana for medical purposes. Under Phase II, the venture will be spread nationwide as legally applicable.
In the description, explain your mission (day-to-day objective) and vision (long term objective) for the company. Also describe how these objectives will be accomplished, such as “leveraging X platform,” “supported by X”, etc...This section could also include a potential list of strategic partners and affiliates that would help you achieve these objectives.
From an investor’s standpoint, seeing positive resumes of the proposed partners makes their investment decision easier to make. They want to know that the partners have good work ethic and are prepared to dedicate the long hours necessary in the early growth phase of a company. Partners should also have a healthy diversity of backgrounds to ensure that each partner brings specialized skills and experience to the table.
This section will also be used to showcase why your team is the team has the capacity to win in your respective business venture. Clearly articulate how your backgrounds will allow your company to thrive.
Market Size and Development
Including research about the general marijuana market size against your company’s proposed market sector gives readers an idea of your company’s potential growth. This research draws some lines in the sand for which market segments your company plans to invest most of its energy. These market segments would include marijuana retailers, growers, infused products, testing labs, ancillary goods, and ancillary services.
Additionally, it gives you an opportunity to clearly define the kinds of customers you will serve (including age, gender, median income, location, etc…) Unless you have a comprehensive team and plan already created, it is wise not to try to capture the entire market in the beginning phases of your company, as you will be spread too thin and lack any direction.
Here is a sample of recent macro trends and insights into the marijuana industry as a whole:
Investment firm Viridian Capital & Research recently published its outlook for the cannabis industry in 2015, including a look at some 75 companies that participate in the various sectors of the industry. Viridian noted that marijuana-related firms raised $80.4 million in capital during 2014, with the three largest segments being consulting services ($20.1 million), ancillary cultivation and retail ($18.9 million) and biotechnology ($12.3 million).
Viridian also maintains an equal-weighted total return cannabis index that posted a gain in 2014 of 38.4%, primarily on the basis of a 939% return in the first quarter of last year. That is when sales of marijuana first became legal in Colorado. Sales began in Washington in June. Consulting services posted the highest return, 170%, followed by biotech (nearly 85%), infused products (57%) and cultivation and retail (33%).
The same investment firm noted that the estimated $10-billion sale of marijuana in 2015 is far too low. In effect, the industry could yield more.
No matter how unique your company is, there will also be another business competing in your chosen market vertical. It really does not matter who does it first; what matters is who does it the best. If you cannot identify any competitors, then your search has simply not been thorough enough.
For your reference (and potential use in your business plan) are a few companies operating in the cannabis industry today:
GW Pharmaceuticals PLC (NASDAQ: GWPH) is a biopharmaceutical company that develops and commercializes therapeutics using a proprietary cannabinoid product platform. The company is included in the Nasdaq biotechnology index and has a market cap of $2.25 billion. Shares closed at $114.11 on Friday, and the stock’s 52-week range is $58.16 to $126.78.
Medbox Inc. is consulting services firm specializing in dispensary and licensing applications. The reported market cap for the company is $242.3 million. Medbox trades over the counter on the OTCQB under the ticker symbol MDBX.
Medical Marijuana Inc. is an investment and mergers and acquisition firm that trades over the counter on the OTCPink board. One of its portfolio companies, KannaLife Sciences, is developing a target drug candidate for treating concussions. The company’s reported market cap is $134 million.
PharmaCyte Biotech Inc. is a clinical stage biotech firm developing and commercializing cancer and diabetes treatments based on live-cell encapsulation technology, including a treatment using cannabinoids. The company’s reported market cap is $133.1 million and it trades over the counter under the symbol PMCB.
Cannabis Sativa Inc. has a reported market cap of $120.1 million and trades over the counter under the symbol CBDS. The company develops, manufactures, distributes and sells herbal-based skin products. Former two-term Libertarian governor of New Mexico, Gary Johnson, is the company’s president and CEO.
CannaVEST Corp. develops, produces and markets hemp-based cannabidiol products to the nutraceutical industry. The company’s reported market cap $88.2 million. The stock trades over the counter under the symbol CANV.
CannaGrow Holdings is a lessor, liaison and consultant to licensed marijuana growers in the state of Colorado. Because growing marijuana is strictly controlled and must meet strict site requirements, there are several companies that specialize in real estate issues. CannaGrow’s market cap is reported at $83.7 million, and it trades over the counter under the symbol CGRW.
Chuma Holdings Inc. is a consulting service that provides turnkey financing and support solutions to the medical cannabis industry in California. The company’s reported market cap is $60.1 million. Chuma trades over the counter on the OTCQB under the symbol CHUM.
Cannabis Science Inc. specializes in cannabis formulation-based drug development and related consulting. The company’s reported market cap is $58.6 million. The stock trades over the counter on the OTCQB under the symbol CBIS.
CannLabs Inc. has a reported market cap of $56.9 million. The company provides consulting services and cannabis testing technologies and methodologies. The company’s stock trades over the counter under the symbol CANL.
Brand Differentiation and Value Proposition
In terms of Value Proposition and Brand Differentiation (which may directly tie to your competition), below is a list of things to consider:
Easier to use
Safer to use
Designed by someone cool or endorsed by a celebrity
Approved by a respected organization
Company qualities (aka value propositions) like these are important to define as best you can early in your process. They will eventually inform how to brand your company to the public. Through the customer discovery process, you are sure to discover other needs and desires of your potential customers that you could not have anticipated. This is fine. As long as you treat your initial value propositions as hypotheses to be tested in the field, you will be able to respond to your customers’ true needs with agility.
Nevertheless, creating value propositions like these in the beginning will help guide your company and prove to anyone that you have some sense of direction early in your growth.
In terms of how your company interacts uniquely with its customers, explain how your cannabis products/services will endeavor to build relationships with customers and respond to complaints quickly and calmly. Delivery will be faster and hassle-free at all times. Offer online ordering where competitors don't. Consider leveraging a digital “platform” much like Uber or Airbnb to connect consumers with your company and with each other.
A strategy that will be followed, even in combination with other tactics, is to reemphasize and even improve on what makes a business successful. A solid marketing plan will clearly show how you plan to approach the marketplace and acquire customers. You may also want to consider what the competitors are doing and how their strategies are lacking or how they can be improved.
Building a sustainable and repeatable path to the customers is one of the hardest aspects of a company so please make sure to pay special attention to this section as it can make (or break) your overall business plan.
The financial plan is one of the most important parts of your overall business plan. If you are seeking outside investment, either from an angel investor, bank, or institutional venture capital firm, you will need to clearly show where their money is going. For example, if you are trying to raise $100,000 - where will that money go? Will it be marketing? Headcount? Research and Development?
This section may also tie in other aspects of your business plan. For example, in your marketing plan, you may have Google Adwords as a strategy and found that your CAC (customer acquisition cost) is around $2.50 per new customer. The more research and well-thought financial analysis you have, the more reputable and reliable you will come across. Make sure to thoroughly research every dollar that will be spent.