Marijuana Entrepreneurs: Do Your Homework First

It wasn’t too long ago that my financial advisor was telling me to put money into marijuana stocks. Marijuana was supposed to be the ‘next big thing’ along the same lines as Amazon and Uber. No doubt the marijuana industry has done very well, but the bloom appears to be off the rose. Indeed, there are plenty of red flags for marijuana entrepreneurs looking to start new businesses.

As for all those stocks my financial advisor recommended, none of them ever panned out. I am fortunate to have ignored his advice this time around. Had I invested, some of the recommended stocks would have produced very little. Others would have resulted in losses.

Opportunities in New States

To be honest, the best bet for marijuana entrepreneurs is to target states that appear to be on the verge of passing medical or recreational cannabis laws. Getting into those states early on means getting a leg up on the competition. Entrepreneurs cannot wait too long for the simple fact that new markets are quickly flooded. It doesn’t take long to achieve market saturation and subsequent attrition.

Some states have already taken measures to avoid that sort of thing. Take Utah, for example. Utah lawmakers have purposely limited the number of medical cannabis pharmacy licenses they will issue. Two of those licenses belong to the Beehive Farmacy, which has locations in Salt Lake City and Brigham City.

Limiting licenses has prevented market saturation in the Beehive State. Interestingly enough though, there are no limits on Utah grower licenses. But entrepreneurs do have to demonstrate that they possess both the financial resources and the business skills to make it work before they can get one.

Not As Easy As It Sounds

The thing about starting a marijuana business is that it is not as easy as it sounds. A lot of shady people trying to make money from new entrepreneurs present the idea that all you need to succeed in the marijuana industry is a small amount cash and an idea. But it doesn’t work that way.

Licensing requirements and fees are the first hurdle entrepreneurs run into. Once they get past that, they need to invest in the actual space, equipment, and labor necessary to run their businesses. That can get awfully expensive.

After that is marketing, accounting, banking, legal compliance, and staying ahead of the competition. Just the banking issue alone is a source of many headaches for marijuana entrepreneurs. Why? Because marijuana businesses do not have access to traditional banking services. They are forced to do business almost entirely in cash.

Don’t Forget the Black Market

If all the previous problems are not enough to stop the marijuana entrepreneur in his tracks, one last thing could do the trick: the black market. It is alive and well from coast to coast. More importantly, it is thriving in the states with the most liberal marijuana laws on the books.

California is the poster child for marijuana’s illicit market. Black market marijuana continues to outperform its legal counterpart in raw sales and production. Legal operators have been begging the state for years to provide both tax and regulatory relief so that they can effectively compete. It is not easy when illicit operators do not pay taxes, purchase licenses, or follow all the rules.

No doubt there is still money to be made in marijuana. Sales of state-legal marijuana are now in the billions of dollars annually – and that is even with several states still holding on to prohibition. But entrepreneurs should do their homework before they dive in. Making money in marijuana isn’t a cakewalk.