The cannabis industry is quickly becoming big business. Last year, U.S. consumer spending eclipsed $10 billion for the first time. Spending is projected to increase to $23 billion by 2022. Investment activity boomed last year, increasing to $13.8 billion in total value from $3.6 billion the year before.
All this growth comes amidst continued federal prohibition of the industry's staple product. Currently, 33 states (plus Washington, D.C.) have a legal medical cannabis program, while 10 states (plus D.C.) have legalized cannabis for adult use. As more states legalize cannabis and debate about the potential end of federal prohibition reaches the halls of Congress, the cannabis industry's prospects continue to brighten.
Is 2019 the year that you should get involved in the cannabis industry? Where is the opportunity, and how should you go about breaking into the space? These cannabis industry business ideas will get you started thinking about what it takes to become a cannabis entrepreneur.
Plant-touching vs. ancillary businesses
The cannabis industry is well known for two major types of businesses: cultivators, which do the growing, and dispensaries, which do the selling. However, these are far from the only businesses operating in the cannabis industry.
There are laboratories focused on product testing, value-added manufacturers creating products like edibles and concentrates, industry-specific data platforms, and a litany of professionals from attorneys to marketers.
The industry can largely be broken down into two spheres, known as "plant-touching" and "ancillary." Plant-touching businesses do just as the name suggests; these companies handle the cannabis plant itself, either cultivating, distributing, processing or selling it. These tend to be the businesses most people think of when they imagine the cannabis industry. Plant-touching businesses are generally subject to the strictest regulations facing the industry, and many must navigate complicated licensing processes before they can get started.
Ancillary businesses are all the companies in the space needed to support the actual growth, processing and sale of cannabis products. These include data platforms, ag-tech companies, point-of-sale systems, payment processors, digital marketers, attorneys, accountants and more. They are the same kinds of companies needed to support business processes in any other industry. While they are also subject to strict regulations, as the entire industry is under the careful watch of the states, they tend to avoid the most stringent rules, like licensing application processes.
The first question you should ask yourself before launching a cannabis business is whether you want to operate a plant-touching or ancillary company. It's no small consideration; you might want to run a dispensary, but understanding the rules, capital requirements and licensure process are critical – and it's not an easy process in which to succeed. If you're serious about running a plant-touching business, you must be realistic about all that it entails.
Breeders are focused on developing high-quality cannabis seeds. Cultivators and dispensaries need to be able to rely on the fact that a breeder's seed will produce the correct strain of cannabis. Many breeders are also on the forefront of creating new strains and experimenting with plant traits. Much of this focus is on the effects of the strain on the end user, but breeders are also interested in creating more resilient plants with higher yields.
Cultivators are the businesses that grow the cannabis plant itself. It's a relatively difficult sector to break into. Most state regulations require that cannabis be grown indoors under a clear set of circumstances, meaning cultivators need to lease or buy warehouse space and convert it to meet their needs.
Cultivation requires a lot of energy from grow lights and climate control systems, and security must be top of mind. Each state has its own licensure process a cultivator must pass through before starting to grow. They tend to be arduous and require a business plan, clear financials, a floorplan of the facility and more.
Some states require that cultivators be vertically integrated with dispensaries as well, meaning one operator must manage the full operation from growth to sale.
Dispensaries are where most consumers encounter the product itself for the first time. Dispensaries, like cultivation facilities, typically go through a thorough application process to obtain licensure from the state. Because licenses are usually limited in number, the process can be highly competitive. It requires a strong foundation, a ready-made infrastructure, a vast network and, of course, money.
Dispensaries have the added challenge of managing their cash. Because cannabis remains federally illegal, many banks won't work with cannabis companies. This creates problems for every business in the industry, but the retail environment of a dispensary becomes especially difficult to manage. Many dispensaries operate in an all-cash manner, although some ancillary businesses have launched to address this problem.
Cannabis extractors take raw plant material and turn it into concentrates, such as oil. These concentrates are highly potent substances that emphasize the cannabinoids, or compounds unique to cannabis, like THC and CBD.
Concentrates can either be consumed by end users directly in a vaporizer or sold to them for purposes like cooking cannabis-infused meals. However, many concentrates are sold to value-added manufacturers that use the extracted material to create new products like edibles.
Extraction requires a significant upfront investment in the right machinery and demands an intimate knowledge of the various processes used to extract cannabinoids from the plant material.
Manufacturers conduct the value-added processes that take cannabis flowers and concentrates and turn them into various products. For example, any edible product, such as cookies, brownies or gummy bears, was part of a manufacturing process to infuse the edible with cannabinoids.
Like extraction, manufacturing requires upfront investment in the necessary facilities and machinery to produce manufactured products at scale. Like all plant-touching businesses, manufacturers must be acutely aware of their state's regulations and abide by them closely.
Ancillary service provider
Ancillary businesses are the wide range of companies providing B2B services to other businesses in the space. The great thing about starting an ancillary business in cannabis is it gives you an opportunity to pivot your existing skill set and experience into a young and rapidly expanding industry.
Although the cannabis industry is now booming, it's still young. The entire U.S. cannabis market is estimated to be worth up to $55 billion, meaning the black market still accounts for about 80 percent of the industry's value.
As more states legalize and the federal government debates following in their footsteps, that market share is likely to shift to the legal side. As the industry increases in value, cannabis companies will have more to spend on services.
Think about what you're already good at and consider launching a cannabis-specific company providing that service. For example, digital marketers can specialize in marketing for cannabis businesses. The key is thoroughly researching cannabis and the industry, engaging in one of the many cannabis-specific trade associations or networking organizations, and establishing yourself as a thought leader in the space.
Looking for work?
If owning and investing doesn't interest you, jobs within the legal cannabis industry are plentiful. Jobs in the industry are diverse and range from $12 per hour to more than $100,000 per year, and the growing demand for labor is expected to continue rising through 2020. A report from industry analyst New Frontier Data projects the cannabis industry will create 250,000 jobs by 2020. Jobs boards like 420Careers and WeedHire can help connect prospective cannabis industry workers with open positions.