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Federal Legalization is Coming – Here’s How to Prepare

Actions cannabis business owners can take now

With several states including New York, New Jersey, and Virginia passing adult-use cannabis legislation in recent months, the number of legal states is now up to fifteen, and the conversation about federal legalization is at a pivotal moment. Reports show that over two thirds of Americans support legalizing cannabis in the U.S.

While nationwide adult-use legalization will provide an enormous opportunity for growth, companies who aren’t ready to bring their products or services to new markets risk getting lost in an overly saturated industry. This article will provide actionable steps that business leaders can take now to set themselves up for successful expansion into new markets.

Establish a strong infrastructure at the state level

Establishing a strong infrastructure on a local scale is the first step toward successful expansion, because this will be the model that companies can replicate to scale nationally.

Ensure your business cycle is fine-tuned and efficient. This means business owners should ensure that systems, protocols, and operations for all departments are solidified and easily accessible in order to seamlessly expand when the time is right. Once a business has established proof of concept in its home state, the same systems can be put into place for new markets.

Documentation is an essential aspect of this work. One prevalent issue in the cannabis industry now is that smaller companies lack written policies and procedures. Documentation should include standard operating procedures (SOPs), written manuals for production, sales, and accounting. These records will be necessary when businesses look to establish capital partners as they grow.

Organize your finances

Another common problem in the cannabis industry is that many companies do not have auditable books. Without finances in order, companies will not be able to take advantage of a legal banking and lending system nor have the financial capacity to scale.

Federal adult-use laws will allow cannabis businesses to obtain loans from the Small Business Administration, which will make a significant financial impact during expansion. If your books aren’t in order, it will be difficult to obtain public financing, and these businesses will have to turn to private investors, who often have higher interest rates.

Additionally, companies who hope to go public after federal legalization will need to undergo a high level of financial scrutiny to maintain compliance. This is another reason why companies need to be prepared: the faster you can pass compliance tests, the faster you can file an IPO.

The best way to prepare your business’s finances for federal legalization is to conduct scrapes and audits on an annual basis. If you don’t have one already, hire an accounting firm that knows the cannabis industry. As a business, you should not be the one teaching your accountant about cannabis and what the various deductions are– let them be the experts.

Build a trustworthy brand

When cannabis companies begin to expand nationally, having a trusted brand will be more important than ever in gaining new customers. It is crucial for brands to educate cannabis consumers. For example, if you enter a dispensary to purchase OG Kush or Sour Diesel flower, there is no consistent formula or type: two Sour Diesel products could be vastly different and provide different experiences. On the other hand, if you go to a dispensary and purchase a product from a familiar brand that has provided education to back the validity of their products, you know exactly what effect and experience that product will provide. Education is a key component that leads to trust.

When all consumers have access to legal cannabis, trusted brands with quality and consistent products will be the ones that prosper most. Those new to cannabis do not have institutional knowledge – so they will rely on strong brands to educate and assist in the exploration of their preferences. Having a consistent and quality brand is essential for building trust in new markets and with first-time consumers.

Rely on the research and data

Currently, the cannabis industry is facing a conundrum: the industry needs a lot more data to refine and standardize products, but as long as cannabis remains a Schedule 1 classification drug, the ability to perform research is highly restricted.

While we’re waiting for the green light, cannabis companies should still prepare for expansion by studying the existing data and conducting independent market research. We’ve already seen why this is so critical for companies looking to expand to new markets: the same product cannot be sold the exact same way in California and Oklahoma, or even in Northern California and Southern California. Even within the same state, consumer preferences can vary widely. However, if you can understand the consumer in a potential new market now, you will be that much more prepared when it actually becomes time to enter that market.

Hand in hand with market research, companies should also be tracking regulations in each state. Right now, there is no one central hub for tracking this information, so companies should have a team dedicated to monitoring trends, upcoming legislation, and what states have medical versus adult-use regulations, and the nuances of each bill. This information not only gives companies a better understanding of the wider industry, but ensures brands are developing a presence and understanding consumer behavior in as many states as they can before there is nationwide legalization.

With cannabis currently criminalized on the federal level, it can feel like there is only so much companies can do until legislation is passed. However, this could not be further from the truth. Although there is a lot more research and data that needs to be done, if companies take the right steps to prepare now, they can drastically reduce the amount of scrambling needed once federal legalization is passed. When that day finally comes, the companies who have developed their internal infrastructure, organized their finances, built a trustworthy brand, and built strong data analytics will be the ones who come out on top.

 

Jason Klein

Jason Klein, President, Inanna Manufacturing, has brokered more than $70 million in commercial cannabis real estate transactions & $40 million+ in sales of commercial cannabis retail, cultivation & manufacturing licenses. He has developed a deep network within the industry and is a trusted source among its key players. Jason’s experience makes him uniquely qualified to guide Inanna clients through the state’s cannabis market.

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