As the legalization of both medical and recreational use of cannabis continues to sweep across the United States, more cannabis businesses are looking to expand into new markets. But owners and operators often try to do so at an unrealistic and risky pace. Rules and regulations vary from state to state, so it’s important to set yourself up for success by becoming well-versed in each state and region’s distinct regulatory landscape and make market-specific adjustments. It’s necessary to implement policies to satisfy safety and compliance requirements, avoid potential pitfalls, and build a strong foundation for long-term operations, sustainability and growth.
Unlike cannabis cultivation and production, excelling as a multi-state operator is far from an exact science, but here are four key guidelines that companies can be mindful of as they prepare to make that transition:
- Understand the Pros and Cons of Licensing Agreements: A common and effective way to bring your cannabis company to a new state is to enter into licensing agreements with an established local company who will handle the cultivation and/or production, packaging and distribution, while keeping your branding narrative and visuals consistent. The benefits of these licensing agreements include speed to market, lowering the amount of capital expenditure used to maintain production, and reduced exposure to 280E, the harsh tax code that state-compliant cannabis companies are subjected to due to still being deemed federally illegal. But there are negatives to these licensing agreements that companies should be wary of, such as lower operational control, reduced availability to capture top line revenue and increased supply chain logistics. To minimize these risks, take the time and effort to find a locally based partner who not only has a proven track record of success, but who understands your company’s goals and can adequately accommodate your workflow.
- Be Aware of Regulation Variances: The regulatory framework in the United States is extremely complicated, varying by state and even municipality. So before entering into a new market, make sure you understand and are compliant with their specific rules for manufacturing facilities, testing, packaging, marketing and business to consumer distribution. For instance, when it comes to bottling THC-infused beverages, California allows drinks to be offered in clear bottles, while Colorado does not permitsee-through bottles.Don’t let seemingly simple differences fly under the radar. Awareness and knowledge are crucial to efficiently introduce your product to new markets – plus trying to take short-cuts to save in the intermediary will cost more money and time in the long term. Different states often have different requirements and mandated platforms to track products from seed to sale. For instance, California cannabis companies are required to use METRC, while Washington state calls for the MJ Freeway tracking system.
- Introduce Flexible Marketing Strategies: State regulations may also affect plans for distribution and the ways companies promote products. With regards to the former, local regulations can make sale efficiency difficult to achieve, so it’s important to be flexible on your distribution goals. With regards to promotion, one way to illustrate this is by considering laws that are specific to your product. For example, areas permitting social consumption lounges (such as the Bay Area, Las Vegas, Los Angeles, Massachusetts, Alaska and Colorado starting 2020) present a marketing and sales goldmine for cannabis infused beverages because drinkable products lend themselves to being enjoyed in a group setting, like having a beer with friends at a bar. If this is the type of product you have, you will want to pay extra attention to places that approved this law. If you have a vape product, you’ll need to consider states that have anti-smoking laws versus those that don’t.
- Maintain Central Supply-Chain Management: Even with strong local partners, it’s important for multi-state operators to remain actively involved, engaged and immersed in each state. That means forecasting trends to stay on top of inventory and making the necessary adjustments based on consumer demand; consistent communication with your local partners and licensees; and frequently visiting these states to foster meaningful relationships with vendors such as dispensaries and their budtenders. Even if your company is based in Colorado and expanded into Massachusetts with a well-known cultivation and production partner, face time with vendors carrying your product is the best way to engage and represent your brand.
We as a licensed cannabis industry have come a long way in a short time, and multi-state operators have become more common than ever before. It’s a risky venture, but if expansion is done carefully and meticulously, the benefits are great, both on a tangible and intangible level. When a variety of brands are recognized across the country, cannabis consumers from coast to coast can be united via their brand preferences and experiences, further legitimizing and elevating our industry.