10 factors that determine the success or failure of a cannabis entrepreneur

The cannabis industry in the United States may face challenges, but it’s still growing. According to the 2022 MJBiz Factbook, sales are expected to top $35 billion in 2022 and $52 billion just four years later in 2026. That means there are plenty of opportunities to get into the industry, either as a plant-touching business or as a side hustle, and savvy entrepreneurs continue to look for ways to capitalize on this growth.

With that in mind, it’s important to understand that the barriers to entry into the industry combined with the day-to-day operational barriers make it difficult for many cannabis entrepreneurs to turn a profit — let alone stay in business.

Legal cannabis in the US is a highly regulated industry and these regulations vary from city to city and from day to day. Things are always changing, but you can be successful if you have the right personality, passion and perseverance.

Before getting into the cannabis industry, consider the 10 factors discussed below that can make or break an entrepreneur.

1. Your commitment to starting a business

It doesn’t matter if you’re starting a business in the marijuana industry or any other, you need to get it right the first time. That means investing in legal, insurance, financial and tax help from experienced professionals who understand the industry and your business.

This is an industry where it can be difficult to find financing, navigate tax regulations and obtain insurance. You need help to ensure your business is set up for success because the cost of making a mistake could put you out of business sooner rather than later.

2. Your belief in the product

It’s common sense that an entrepreneur should believe in their product to be successful, but in the cannabis industry, you don’t just have to believe in the specific product or service you’re selling, you have to believe in marijuana itself. You shouldn’t just because of of the money to be in this industry as it is unlikely to come quickly.

Marijuana is still illegal at the federal level, and while 68% of US adults support legal cannabis, you are likely to be scrutinized and negatively viewed by some members of the community in which you do business. As such, you must educate, defend, and advocate for marijuana and your products and services.

Don’t underestimate the vital importance of building relationships within your community, conducting outreach, and educating people. Are you ready to wear all those hats? If not, then this may not be the industry for you.

3. Your ability to navigate change and uncertainty

One thing you can count on in the cannabis industry is that it will change often. As a cannabis entrepreneur, you will face a lot of uncertainty as the industry evolves. State laws, county laws, city laws, and even neighborhood rules are constantly changing, and you need to keep up.

Things are changing even in states where medical and/or adult cannabis has been legal for years. You must be able to cope with the macro and micro environments in which you do business, as well as the competitive threats, and you must be flexible enough to adapt quickly.

Compliance is mandatory, so it is important that you either hire someone to oversee compliance matters for your business or do it yourself – and do it very well.

4. Your resilience

As a cannabis entrepreneur, you will face obstacles in starting your business and running it on a daily basis. For example, you will likely struggle to get financing to start or scale your business. You’ll face tax complications that companies in other industries don’t have to worry about, and you may even have trouble getting a bank account or payment processor for your business.

Are you resilient enough to keep going despite the many obstacles you will encounter along the way? Are you still motivated after the fifth road block? What’s after the twentieth roadblock? The fiftieth? Only you can answer this question, so think about it before you dive into the industry thinking that it’s an easy way to make big bucks.

5. Your ability to learn and obey the laws

As previously mentioned, the laws of the cannabis industry are constantly changing. Each state and municipality has its own laws, and you must learn all of them for the areas in which you do business. That means you may have to invest more money in things like logistics, marketing, sales, distribution and more than you would expect because what you are allowed to do in one city may not be allowed in the next.

In addition to learning and complying with the frequently changing laws, you must also understand how those laws can affect the profitability of your business. Many areas in which companies in other industries can benefit from economies of scale and optimized processes are not available to you.

6. Your willingness to stay focused

The marijuana industry offers many opportunities, and as it grows and changes often, new opportunities will constantly arise. The key to success as an entrepreneur is recognizing when these opportunities are strategic, low-hanging fruits and when they are distractions that lead to mission creep.

In other words, you need to define your business plan, strategize to achieve your goals, and stick to it. I always say a focused brand is a strong brand, and that’s as true of the cannabis industry as it is of any other industry. Don’t lose focus!

7. Your skills and experience

Some entrepreneurs are drawn to the marijuana industry because they see easy money. They may not have retail, sales, or customer service experience, but they decide to open a marijuana dispensary because it sounds like a great moneymaker. Unfortunately, the reality is very different.

To be successful as a cannabis entrepreneur, choose a business that leverages your existing skills, knowledge, and experience. Yes, you can always learn more or hire staff to fill in knowledge gaps, but if you start in your comfort zone and choose a type of company that matches your talents and skills, you have a much better chance of success.

8. Your ability to hire and lead a team

As an entrepreneur, you need a strong team to be successful. You just can’t do everything yourself and expect to grow. Hence, you need to brush up on your leadership and hiring skills. Take stock of your skills and knowledge. Where do you need help? Which business areas are outside of your expertise? With this information you can build a powerful team to ensure everything is covered.

A good leader recognizes that they don’t know everything. A good leader also knows that investing time and money in building a high-performing team can mean the difference between success and failure. So be prepared to pay enough to attract the right talent and once you find that talent let them do what they do best.

Remember that the number of people working in the cannabis industry is growing every day. According to the 2022 Leafly Jobs Report, the industry added an average of 280 new jobs per day in 2021, and in January 2022 the industry supported nearly half a million jobs (428,059 to be exact). That means competition for the best talent will increase. Therefore, you must be prepared to adjust your salaries, benefits, and other perks to ensure your company is offering the right compensation packages.

9. Your understanding of the competition

Competitive research is critical to your success as an entrepreneur. With so many opportunities in the cannabis industry, you need to do your due diligence and determine where there is room for a new company to make things better and gain market share.

Once you have identified the type of business you will be starting, keep competitive analysis reports on each of your direct and indirect competitors. Monitor their blogs, content and social media profiles. Track the events they attend, advertising they invest in and keywords they use to drive traffic to their sites.

Invest in tools like SEMrush and Spyfu to gain powerful insights you can use to improve your own chances of success. The Cannabiz Media License Database is another essential tool that many entrepreneurs and businesses of all sizes use for competitive research, customer relationship management, email marketing, and sales work.

10. Your style

Gone are the early days of the cannabis industry – when it was okay to run a business like a stoner. Today you need to run your business like a savvy, success-oriented entrepreneur. That means you should dress the part and play the part.

As a cannabis entrepreneur, you must invest time and money to build your brand (including your business and personal brands), provide leadership for your people, and build credibility and trust with a variety of stakeholders and audiences, including the community, your industry peers , investors, business partners and even the media. If your internal and external audiences don’t perceive you as capable of getting the job done, your business is likely to fail.

To that end, be personable, be smart, brush up on your networking skills, be ethical and start building professional relationships that will help your business grow.

Key takeaways for being a successful cannabis entrepreneur

Bottom Line: Proceed with caution when considering entering the cannabis industry. It’s not for everyone, but if you have the right attitude, spirit and commitment, you can be successful.

With so many laws making it difficult to operate in the industry, taxes making it difficult to make a profit, and misconceptions about marijuana making it difficult to promote cannabis products and services, many entrepreneurs feel set up as if they were failing in this industry.

For entrepreneurs who understand the obstacles and risks, and are willing to stick with it for the long term, the results can be worth the time and effort. Are you one of these entrepreneurs?

Originally published on 7/3/18. Updated 12/9/22.