Setting Up Your Cannabis Business Plan: Top 3 Challenges and Top 3 Solutions

Well-written Cannabis SOPs (cannabis standard operating procedures) and a well-written cannabis business plan provides internal direction and attracts other businesses and investors that want to do business with you. A cannabis business plan is not a requirement for cannabis licensing with Health Canada, but it is required by the Canadian Revenue Agency (CRA).

Investors evaluate cannabis business plans to make sure there is sufficient depth of knowledge about the industry. They want to see a solid set of operating principles based on well-researched trends and projections. The cannabis business plan also tells investors how a cannabis business will respond to unforeseen changes. The cannabis market has become highly competitive, so having a good business plan is an important way tp stand out to investors.

Cannabis business plans are not an easy undertaking. Crafting a cannabis business plan requires a lot of time spent researching the industry, understanding operational principles, and how your business will differentiate itself. It is also necessary to scout the competition, identify your market, set milestones, and establish the company’s structure.

The global cannabis industry is growing at a rapid pace. There are already talks of international cannabis trade, meaning a lot of opportunities for cannabis entrepreneurs.

According to information from Statistics Canada, online and retail store sales in the country have reached $908 million since cannabis was legalized. There are more than 400 retail cannabis stores, with 45% of Canadians living within 10 km of one.

Dried cannabis sales represent 92% of total sales according to November 2019's Health Canada's cannabis research data. Licensed producers are cultivating approximately 185 hectares of cannabis to keep up with the growing demand.

It may surprise you to realize how many challenges cannabis start-ups face. Cannabis is a highly regulated industry, with GPP and GMP standards to follow. To begin with, a prospective cannabis business needs to understand the regulations that apply to them. A great cannabis business idea may not always be legally viable. It is important to know where your cannabis business plan stands from a legal standpoint, and if it stands a chance of qualifying for the necessary licensing.

Have you fact-checked any of your assumptions with other members of the cannabis industry? Do you know of other similar businesses that are already licensed and operating? Have you polled members of your local municipality to see if your particular business and location could be zoned for this activity? Doing your due diligence on the regulations can be a smart way to check your assumptions before spending too much time and money on an idea with serious roadblocks ahead of it.

Another challenge to cannabis businesses is understanding taxation. All of the Canadian territories except Manitoba have Coordinated Cannabis Taxation Agreements ("CCTAs") with the Canadian federal government. Ontario, Alberta, Saskatchewan, and Nunavut have additional duties for cannabis products as well. The overarching principle behind the coordinated taxes is to allow the industry to thrive. So all territories have agreed that federal, provincial, and territorial cannabis-specific duties and taxes will be no more than a dollar per gram or 10% of the producer’s selling price.

The third challenge facing cannabis entrepreneurs is banking. Banks are very hesitant to work with cannabis companies, and cannabis companies can have difficulty accessing business banking tools like lines of credit. From accepting payments to storing and investing money, banking is an important part of doing business. Luckily, Canadian banks are far more prepared than US counterparts to offer funding and banking services to cannabis ventures. You may need to clear some additional due diligence hurdles however. For example, Canadian firms must prove to their bankers that they do not have operations in or linked to the US financial system.

To face the challenges of setting up your cannabis business and associated business plan, there are a few emerging resources to be aware of. It can be hard to go it alone in any industry, so consider reaching out to these types of business resources to help get your cannabis business plan off the ground.

Business incubators are institutions that aim to accelerate the growth phase of a start-up business. Incubators are all set up differently, but share the ability to help people make their great ideas a reality. Here are some of the advantages of working with a cannabis incubator:

• Start up funding (often exchanged for equity)
• Access to industry experts
• Mentoring through the start-up process

In Canada, the government has opened up access to traditional business resources as well. BDC, Farm Credit Canada, and even traditional banks are now more willing than ever to discuss your legal cannabis business. There is even a special division of the chamber of commerce dedicated to helping cannabis businesses - The Cannabis Commerce Association of Canada.

Cannabis consultants, and advisory firms like GrowerIQ, offer personalized business solutions. There are a variety of types of cannabis consultants. Some specialize in horticulture while others work on regulatory, legal, and/or business consulting. Like with all consultants, it is best to choose a niche cannabis consultant with a proven track record.

Cannabis consultants can help you create a solid cannabis business plan. They can also walk you through the licensing and application process, including helping you set up your business operations.

Business plans contain several sections, each one an important aspect of how a business will run. Having a solid cannabis business plan is essential for acquiring funding and licensing. While some still cling to the antiquated notion that cannabis industry participants are just a bunch of stoners, this is far from the truth. The cannabis industry has quickly evolved into a highly professional business. Still, the first challenge any cannabis business will face is overcoming that lazy stoner stereotype.

A cannabis business plan is an important way to offer proof that a business concept is viable and worth investment. The cannabis market is extremely competitive and it is essential to prove, through your business plan, that you can stand out. If you are ready to write your cannabis business plan, here is a guide to make sure you get each part right.

A typical cannabis business plan will include the following:

1. Executive Summary
2. Product/Service Description
3. Industry Analysis
4. Competitive Analysis
5. Marketing and Sales
6. Management Team
7. Operation Plan
8. Financial Plan

The executive summary is a brief summary of the cannabis business. While this is the first part of a cannabis business plan, it is often helpful to write it last. The executive summary should summarize the entire scope of the business plan. It should contain high-level facts and metrics but also be able to be read and understood independently of the rest of the business plan.

The executive summary of a cannabis business plan should also talk about the business’s goals and exit strategy. Those details should come at the end of the summary, but you will want the mission statement of your cannabis business at the beginning.

Exit Strategy

An exit strategy may include details on what value the business will have if liquidated, as well as future plans like taking the business public. The data from an exit strategy helps businesses allocate resources to areas that will build the value of the business entity. The exit strategy also lets investors know what kind of return on investment they can reasonably expect.

In this portion of a cannabis business plan, you want to describe the specifics of what you are selling. The product description should detail the production process and why the product is viable. You will definitely want to highlight what unmet needs of the marketplace your cannabis business can solve.

Cannabis business plans need to describe their products or services in terms of profitability and long-term value. Intellectual property, patents, and innovations in physical products and business processes can all demonstrate avenues for value creation. Some companies are not making a special product, but are making a product in a special way. These details are things that investors will want to hear all about!

The industry analysis portion of a cannabis business plan talks about the big picture of the cannabis industry. Facts and numbers should be used to give investors the industry basics. It is very important for cannabis business plans to communicate a deep understanding of the industry. The cannabis industry can change quickly, and business owners need to have a clear plan for keeping up.

Cannabis businesses will also need to analyze regulatory considerations. Regulatory risk is a top concern for cannabis investors. Your company should have a clear plan for regulatory compliance that includes financial considerations. Certifications such as ISO or GMP are very expensive to acquire and maintain but are very important, or critical to some jurisdictions and distribution plans.

A competitive analysis is a break down of other firms operating in your space. At this point, it is important to talk about the key differences in your product and how you can outperform the competition. To help you do this, highlight industry-specific business elements and analyze what direct and indirect competitors exist in that space.

Every business has competition. The better you understand who that competition is, the better you will be able to differentiate yourself and find ways to make your business model stand out. Even simple solutions like making it easier to process payments can grant subtle advantages that add up.

Building a sustainable cannabis business means having a clear marketing plan. The cannabis marketing plan demonstrates what opportunity there is for a cannabis business to capitalize on. It is very important to be able to identify marketing targets and strategies that will be used to meet them. It is also important to know how much marketing will cost. The cannabis marketing plan should answer the following questions:

• How will you promote the cannabis product?
• Where will you advertise your cannabis product?
• How will you sell your cannabis product?
• Do you plan to use traditional or more conceptual types of marketing?

Investors want to know how sales will be generated and who your clients will be. The cannabis marketing plan should also discuss how customers will pay and where they will be able to purchase products. Distribution can be a key differentiator for your business.

It is important that hidden costs like payroll taxes are considered in the marketing cost projections. Any staff involved in marketing and sales should be identified, along with how commissions will be paid. Be sure to explain “how” your business will achieve its sales and marketing goals.

Potential investors want to understand the team behind the investments they make. This makes it important to tell them about your company’s management team, including all staff involved in key day-to-day operations.

The management section of a cannabis business plan should describe the business' organizational chart and reporting structure. It should also describe key roles and responsibilities and talk about any key external team members like attorneys and bankers.

The operating plan of a cannabis business plan describes how day to day work will get done and how the business generally operates.

How will you build the business' infrastructure to impact the financial projections, the cost basis at which you’ll operate, and the ability to deliver profits?

Here are some questions that your operating plan should answer:

• Do you need to source products from a distributor?
• Who are your distributors and what terms have you negotiated?
• How do you plan to leverage cannabis cultivation software?
• Do you need regulatory compliance services?
• What are your costs and contract terms?
• Who will manage key relationships?

The financial plan of a cannabis business plan is an important aspect. The more well-researched the financial plan is, the more your business will appeal to investors.

The financial portion of the cannabis business plan should set out how much money the business needs to raise and where the money will go. Information for the financial plant is based on the research of similar companies and realistic projections.

Key Aspects of a Cannabis Financial Plan

• Profit & loss statement
• Cash flow statement
• Balance sheet
• Historical statements (if any)
• Financial projections

Financial Planning Questions

What’s the level of price competition in the market?

Can gross/operating margins be maintained in a market facing downward price pressure?

What are your ongoing capital requirements?

Will growth be organic, or is M&A a component of the overall growth strategy?