Online Business Start-Up - Marijuana Based Products

[Mikkel]

Summer is almost over, Graduate school is about to start and I am about to start a business... Great

Some of you may know that I am running multiple Instagram accounts. I have decided over my time growing my accounts that I am taking one of these accounts and turning it into a business. The business concept is not to difficult, however I have never executed a business plan before. Therefore learning during the process is a MUST!

The watered down plan is simple:

Grow IG Account ---> Funnel Followers/Viewers to Website ---> Sell Products

The more complex plan involves getting my products into stores while also gaining organic page followers to my website without IG. The reason being is that I do not want IG to have control of my business.

Now, as the title says, I plan on selling Marijuana Based Products. No, I will not be selling Marijuana. That involves to much waiting around, to many laws to work around and overall it is just another gold rush. We all know the saying, "Sell the shovel, don't mine the gold."

Anyways. Here is the list of things I need to do. Complete v.s Incomplete

Make IG Account(I have 6,000 as of today)

Find First Product to Sell

Find, Contact and Test Sample Product - Satisfied with Product

Create Logo - Vector Format - Logo Designed for Company/IG/To Be on Product

Order Products - First Shipment will take 2 weeks for delivery

Build Website w/ Shopify Cart(Website Name is Already Mine)

Receive Products

Create Plan for Shipping (I believe U.S Postal service will be best option, product less than 1 lbs. w/ $5 flat rate)

Release 6/7 day promotional ad campaign over my IG page (This involves changing my Old IG account name to become the business name and to promote the release of the product)

Learn how to do Accounting? (I have no idea what I'd be doing with this. I assume it's a must that I do?)

LLC - I don't even know when I would HAVE TO create this into an LLC. I'm by no means wealthy and definitely on a shoe string budget)


Costs/Money/Numbers

Initial Start Up:

$330 - 30 units of product
$10/yr - Namecheap price for first year ---> $33/yr after first year
$30/month - Shopify
$20 Logo - College Friend in Graphic Design Helping Me Out
------------------
$390 - Initial Startup cost


Selling Products:

$330/30 units = $11/unit
$5 shipping in U.S - Paid by customer
Plan to sell products(5 units) = $20 + $5(shipping) = $25 bill to customer
Profit: $20 - $11 = $9


Pricing In Future: These are different pricing plans from manufacturer and their outcomes

1. $330/30 units = $11/unit ---> 30 units x $9(profit) = $270 Total Profits
2. $1,000/200 units = $5/unit ----> 200 units x $15(profit, new profit due to lower price/unit) = $3,000 Total Profit

3. $2,600/1,000 units = $2.6/unit ---> 1,000 units x $17.4(Profit, new profit due to lower price/unit) = 17,400 Total Profit

Questions to FLF community:

1. When should I be looking into making this into an LLC?
2. Can anyone ease my mind on the accounting aspect of business, or am I in for a rude awakening?
3. Any suggestions



EDIT:

The numbers have changed due to good advice and in hopes to try and make the math less confusing for readers.

 

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[konflikted]

Questions to FLF community:

1. When should I be looking into making this into an LLC?
2. Can anyone ease my mind on the accounting aspect of business, or am I in for a rude awakening?
3. Any suggestions?

1. Easiest answer would be whenever you feel like it. The best answer would probably be after you have proven your market so that you don't have to worry about changing your mind later. Depending on if you are doing a lot of local sales or not you may want to do it immediately just to ensure your name is locked in. The last thing you want is to find out that you have a great product and brand potential only to find out that there is someone else that thinks your a stoner since you are offering "Tobacco Accessories" and locking your brand so that you have to pay them to unlock it... And before anyone says it won't happen I would like to point them all to the .com bubble that saw random people buying domains like ford.com etc. For every quick fire entrepreneur there is a geeky one who makes it their business to ensure that they take a haircut as part of your establishment.

2.&3. For this one I have to ask what worries you about the accounting of the business? Is it the industry your supporting with your product? If so don't worry about that as long as you aren't selling the MJ you should be fine as the MJ/Tobacco Accessories market is loosely regulated at best. The only reason its in the news a lot lately is the changes for VAPE Scene products and MJ Decriminalization lobbying. Other than those two sub sectors of the market for the most part it's overlooked so from that aspect your fine.

If however, your talking about your forecasting then that's different. There are a few issues.

If you know that you can get the product for $1/unit LANDED with an MOQ of 1000 why are you not doing it?

Here is how it would differ for you if you just splurged on the $1000 order up front:
$1000 - 1000 units or 200 Pieces (Pieces = 5 Units)
$10/yr - Namecheap price for first year ---> $33/yr after first year
$30/month - Shopify
$20 Logo - College Friend in Graphic Design Helping You Out

Startup Costs 1060

Also your information after the 30 is difficult to follow, make sure that you use the same variables throughout your post notice how I changed it from 1000 units to 200 pieces. All math for your business on the front side should be based on what the company sells not "How it's made" if you are re-packaging in groups of 5 then all of your math should be based on groups of 5. In the calculations you did that but the way you worded it you used the word units way to many times.

When you determine whether or not to jump in with both feet with the 1000 dollar order take this into consideration how many of them can you sell in 1 day/1 week/ 1 month. How often will you need to reorder supplies to build your product? Also figure out how/when would be the best time to order at the 5000 unit level. If I was as confident about my model as you seem to be and could engage a growing audience I would be doing everything I could to get to that level now.

Last question for you then i'll shut up... Maybe.
Is this product a commodity? If so start small verify market and get ready to launch a rocket if it is not a commodity see if you can presell just to verify your customer base wants your offer.

Kon

 

[Mikkel]

@konflikted thanks for the quick reply!

2.&3. For this one I have to ask what worries you about the accounting of the business? Is it the industry your supporting with your product? If so don't worry about that as long as you aren't selling the MJ you should be fine as the MJ/Tobacco Accessories market is loosely regulated at best. The only reason its in the news a lot lately is the changes for VAPE Scene products and MJ Decriminalization lobbying. Other than those two sub sectors of the market for the most part it's overlooked so from that aspect your fine.

My only concern is for taxes. Once I begin selling products I assume that my sales will have to be taxes and therefore I need to know what is being sold

If you know that you can get the product for $1/unit LANDED with an MOQ of 1000 why are you not doing it?

Here is how it would differ for you if you just splurged on the $1000 order up front:
$1000 - 1000 units or 200 Pieces (Pieces = 5 Units)
$10/yr - Namecheap price for first year ---> $33/yr after first year
$30/month - Shopify
$20 Logo - College Friend in Graphic Design Helping You Out

Startup Costs 1060

This has been on my mind for quite some time to be honest! I am on quite a strict budget. I don't work much due to being in graduate school so my money that I do have does not even add up to $1060. Due to my lack of funds, I thought it would be a good idea to test the market. Buy 30 units worth(taking your advice of referring to 5 units as 1 unit sold) of products and see how well they sell. If these products go flying off the shelves than I can sell some stocks that I own(They are up at the moment) and be able to buy 200 units worth of product and have my cost per unit be reduced by more than double!
That was my logic behind the idea to go for 30 units first.

Also your information after the 30 is difficult to follow, make sure that you use the same variables throughout your post notice how I changed it from 1000 units to 200 pieces. All math for your business on the front side should be based on what the company sells not "How it's made" if you are re-packaging in groups of 5 then all of your math should be based on groups of 5. In the calculations you did that but the way you worded it you used the word units way to many times.

I will go back and edit these numbers so people reading this post will better understand! Thank you for the quick tip

When you determine whether or not to jump in with both feet with the 1000 dollar order take this into consideration how many of them can you sell in 1 day/1 week/ 1 month. How often will you need to reorder supplies to build your product? Also figure out how/when would be the best time to order at the 5000 unit level. If I was as confident about my model as you seem to be and could engage a growing audience I would be doing everything I could to get to that level now.

Last question for you then i'll shut up... Maybe.
Is this product a commodity? If so start small verify market and get ready to launch a rocket if it is not a commodity see if you can presell just to verify your customer base wants your offer.

I am confident that at some point I will be able to sell these products. How quickly, I am not sure. I don't know if 6,000 followers is a large enough audience to be able to sell at quite a large volume. Luckily for myself, I know how to grow my following as my second account has 31,000 followers and is only a couple months older than my marijuana account.

This product is not a commodity in the sense that it is not hemp(only commodity I can think of within the marijuana industry.) My product however is similar in how food works for food markets. Once you use it x amount of times, you are going to need to buy more. So customers who buy once may also be repeat buyers. For that reason, customer service is going to be even more critical in the early stages of this business.



UPDATE:

I tried using FIVERR for a logo design. Though I could sneak by the cheap way and get a minimalist logo for cheap... but I was wrong. I have asked a college friend of mine if she could make up a logo for me. I will be able to sit down and talk to her and get exactly what I want, which I am looking forward to. This is only cost me $20 so I am thankful for that!

I am at a bit of a standstill at the moment though. To get my product made, I need to have a finalized logo to use on the product itself. I have decided to work for the next few days to FULLY automate my Instagram page so that the next 3 months can be spent working on my school work and business rather than posting photos and gaining followers manually.

Once I get my Logo made, hopefully by next week, I will allow me to order my product. The product will take 2 weeks to arrive from the order date. This will give me enough time to build my website with Shopify integrated and fully set up my 6/7 day product release campaign on IG.

 

[pavan arora]

@konflikted thanks for the quick reply!



My only concern is for taxes. Once I begin selling products I assume that my sales will have to be taxes and therefore I need to know what is being sold



This has been on my mind for quite some time to be honest! I am on quite a strict budget. I don't work much due to being in graduate school so my money that I do have does not even add up to $1060. Due to my lack of funds, I thought it would be a good idea to test the market. Buy 30 units worth(taking your advice of referring to 5 units as 1 unit sold) of products and see how well they sell. If these products go flying off the shelves than I can sell some stocks that I own(They are up at the moment) and be able to buy 200 units worth of product and have my cost per unit be reduced by more than double!
That was my logic behind the idea to go for 30 units first.



I will go back and edit these numbers so people reading this post will better understand! Thank you for the quick tip



I am confident that at some point I will be able to sell these products. How quickly, I am not sure. I don't know if 6,000 followers is a large enough audience to be able to sell at quite a large volume. Luckily for myself, I know how to grow my following as my second account has 31,000 followers and is only a couple months older than my marijuana account.

This product is not a commodity in the sense that it is not hemp(only commodity I can think of within the marijuana industry.) My product however is similar in how food works for food markets. Once you use it x amount of times, you are going to need to buy more. So customers who buy once may also be repeat buyers. For that reason, customer service is going to be even more critical in the early stages of this business.



UPDATE:

I tried using FIVERR for a logo design. Though I could sneak by the cheap way and get a minimalist logo for cheap... but I was wrong. I have asked a college friend of mine if she could make up a logo for me. I will be able to sit down and talk to her and get exactly what I want, which I am looking forward to. This is only cost me $20 so I am thankful for that!

I am at a bit of a standstill at the moment though. To get my product made, I need to have a finalized logo to use on the product itself. I have decided to work for the next few days to FULLY automate my Instagram page so that the next 3 months can be spent working on my school work and business rather than posting photos and gaining followers manually.

Once I get my Logo made, hopefully by next week, I will allow me to order my product. The product will take 2 weeks to arrive from the order date. This will give me enough time to build my website with Shopify integrated and fully set up my 6/7 day product release campaign on IG.

i need your help how can i put my instagram on fully automate?

 

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[GeoffP]

@konflikted thanks for the quick reply!
My only concern is for taxes. Once I begin selling products I assume that my sales will have to be taxes and therefore I need to know what is being sold

The short answer about sales taxes is that you'll have to collect sales taxes in each state you are considered to have nexus in. You can google sales tax nexus (state name) and it should tell you the requirements for the specific state you're looking at. Some things to consider are where orders are being taken and fulfilled from. These states will likely be where you'll have to collect tax at a minimum.

 

[Mikkel]

i need your help how can i put my instagram on fully automate?

Private message me when you get some time. I can get you going in the right direction.

The short answer about sales taxes is that you'll have to collect sales taxes in each state you are considered to have nexus in. You can google sales tax nexus (state name) and it should tell you the requirements for the specific state you're looking at. Some things to consider are where orders are being taken and fulfilled from. These states will likely be where you'll have to collect tax at a minimum.

This is the reason I post wanted to post a progress thread, so I could get some information like this to help me figure out where to go! Much appreciated, @GeoffP

 

[GSF]

Private message me when you get some time. I can get you going in the right direction.



This is the reason I post wanted to post a progress thread, so I could get some information like this to help me figure out where to go! Much appreciated, @GeoffP

I looked into sales tax recently, if you are an online seller and use a fullfilment centre in Virginia you are not considered to have nexus so no sales tax requirements there, also there are 4 states with zero sales tax including New Hampshire, Delaware, Montana and Oregon.

What is instagrams policy on cannabis related accounts? I've heard anything weed related gets shut down?

 

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[LleixG]

I looked into sales tax recently, if you are an online seller and use a fullfilment centre in Virginia you are not considered to have nexus so no sales tax requirements there, also there are 4 states with zero sales tax including New Hampshire, Delaware, Montana and Oregon.

What is instagrams policy on cannabis related accounts? I've heard anything weed related gets shut down?

As long as you aren't selling weed you are fine: you can sell bongs, etc...

 

[Mikkel]

I looked into sales tax recently, if you are an online seller and use a fullfilment centre in Virginia you are not considered to have nexus so no sales tax requirements there, also there are 4 states with zero sales tax including New Hampshire, Delaware, Montana and Oregon.

I'm going to have to look into this aspect, see if there are any loopholes. I'm sure this business has plenty of them.

Regarding cannabis and Instagram, you can get your account shutdown if you're reckless. I believe in time, Cannabis will be 100% legal and Instagram will change there viewpoint. However, if you are carefully then you will be fine. My rule of thumb is if a niche account can be flagged as innappropriate, I do not hashtag my photos, period. So two of my IG account that account for 40k follower have NEVER used a hashtag. I am capable of growing my followears without the hashtag so I choose to play it safe.

 

[LleixG]

I'm going to have to look into this aspect, see if there are any loopholes. I'm sure this business has plenty of them.

Regarding cannabis and Instagram, you can get your account shutdown if you're reckless. I believe in time, Cannabis will be 100% legal and Instagram will change there viewpoint. However, if you are carefully then you will be fine. My rule of thumb is if a niche account can be flagged as innappropriate, I do not hashtag my photos, period. So two of my IG account that account for 40k follower have NEVER used a hashtag. I am capable of growing my followears without the hashtag so I choose to play it safe.

You can use hashtags, you aren't going to get banned because of it. If you get banned and you weren't doing anything illegal they'll give you your account back as long as you have access to the original email of the account, even if you are using a bot they'll unban your account.

 

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[Mikkel]

You can use hashtags, you aren't going to get banned because of it. If you get banned and you weren't doing anything illegal they'll give you your account back as long as you have access to the original email of the account, even if you are using a bot they'll unban your account.

I had 4 accounts banned, testing the limits of questionable accounts. The difference between my account that was banned at 2,000 followers and my account that is currently active with 32,000 followers was the lack of hashtags. I'm not saying you are wrong, because you probably are not. I just don't want to take any unnecessary risks. Certain photos that have certain hashtags are more likely to be flagged and reported. There is always someone who trolls you hard enough to get you banned, even if it just a competitor in the same space that sees your tag. I will be using hashtags on my new Instagram account though!

 

[GSF]

I had 4 accounts banned, testing the limits of questionable accounts. The difference between my account that was banned at 2,000 followers and my account that is currently active with 32,000 followers was the lack of hashtags. I'm not saying you are wrong, because you probably are not. I just don't want to take any unnecessary risks. Certain photos that have certain hashtags are more likely to be flagged and reported. There is always someone who trolls you hard enough to get you banned, even if it just a competitor in the same space that sees your tag. I will be using hashtags on my new Instagram account though!

Just had a look on Instagram and there seems to be a lot of weed related accounts doing just fine.

Reason I asked was I remember seeing a shopify case study doing something similar to you (weed accessories) and I think he got banned but is having success with alternative marketing channels, might be worth a look;

https://www.shopify.co.uk/blog/how-bee-high-built-and-marketed-a-side-business-using-tumblr-8

 

[GeoffP]

Private message me when you get some time. I can get you going in the right direction.



This is the reason I post wanted to post a progress thread, so I could get some information like this to help me figure out where to go! Much appreciated, @GeoffP

This is the reason I post wanted to post a progress thread, so I could get some information like this to help me figure out where to go! Much appreciated, @GeoffP[/QUOTE]
No problem, hit me up if you run into any tax related snags... I was a CPA before I stopped drinking the Slowlane Koolaid....

 

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[Mikkel]

UPDATE:

No real update though. Still waiting on my Logo to arrive.


However, I have decided that rather than wasting my time waiting, I would like to get the legal end of things ready to go!

The only problem is, I am totally lost!

Legal Needs

I need to be either a Sole Proprietor or LLC
I was advised to resister as a Sole Proprietor until I make my first sale, that way I don't have to be held back due to my lack of funds.

File a "Doing Business As" form with my town clerk's office

I believe I need to obtain some sort of License to sell online. However, when I checked with Massachusetts government web page, under business, I did not find anything that would fall under my category of business.
Does anyone know if there are specific licenses I would need whether it be the state or federal level to allow me to legally sell privately labeled products online?


I also will be opening up multiple bank accounts, thanks to the advice of @Mattyg

Would anyone be able to tell me if I am on the right track or should I expect to be filing more legal paperwork before I am able to start selling?

 

[Omni]

I'm skeptical of the IG followers converting. I think the largest issue you'll face here is traffic. You should test the responsiveness of your audience with a promo post to link them to a related product offered by a competitor (so you can track the click through) or even to a pre-sell landing page of your own (so you can get a feel for click through and demand)

Can you sell your product on Amazon and piggyback off that traffic?

And of course, your other issue is legal. No one's going to be able to give you specific advice without knowing what you're selling. And I don't recommend revealing your product or taking legal advice from a bunch of us anonymous internet folk

 

[Mikkel]

Traffic has been my main concern as well. I believe I will have to go above and beyond to really push my name out there. Some interesting ways I've seen this done was by producing magazines. I feel that the marijuana industry would love something like this. You got "The High Times" that is quite popular. Besides that, you really only have blogs out there. Snapchat has also been big with converting people. My last ditch effort to sell these products was to go store to store and see if places like smoke shops would sell my products. Start local and branch my way out.

I am not familiar with tracking click throughs by links on a promo post, however I may be able to offer a 10% discount to those who sign up through the mailing list. I feel as that may suffice for testing the responsiveness of my audience.

I have seen people selling my products on Amazon, so I may be able to take what I learned from Amazon Business Theory, that I learned for free a year ago, and simultaneously release the products on both platforms.

The products I sell are all legal, I'm not sure about age limit however. I understand the point of not knowing without specifics, in terms of legal forms

I just didn't know if there was any common license all eCommerce sells had to have. I know those that resell products need a Re-sellers License, but eCommerce is new to me.

Thanks @Omni for pointing out some aspects that need a bit more work/testing on. I'll update people on the mailing list results.

 

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[Omni]

If your product is the same or lower quality as your competitor's on Amazon, you won't get any traction (especially since you mentioned you're on a shoe-string budget). The only way to compete on Amazon and elsewhere is to offer a product that your competitors don't have, so over time they gravitate toward your product because it's better quality. That, and you'll need a good budget for paid marketing and inventory.

If you do go the amazon route, you're overcomplicating it.
1) You just need a seller account which is $40/mo. Then you can send inventory for fulfillment.
2) LLC or sole prop (get a EIN which is free)
3) Then you get taxjar to track where you owe sales taxes. You'll pay for whatever state you're operating from always, then for the states where you have a nexus (depending on what you believe for nexus and if FBA warehouses count).

But overall, test the demand for your product first. Sell it to friends and local shops now. How do you even know they want it compared to what's already existing? This is especially poignant because you said you've seen people selling your products on amazon, which leads me to believe that your product has no additional value add compared to the competition. No competitive advantage = lack of sustainable profits.

 

[Mikkel]

@Omni You're breaking my confidence in this product down Which is a good thing! My product is essentially the highest quality product out there, but the quality is not anything special because other companies use the exact same product. My only selling point is essentially the brand and the feeling people get when they are on my Instagram page, which is not enough to sell confidently.

I have asked friends to test my sample product against what they already use and they told me that the quality is top notch. Essentially, it is the exact same product but it is just re-branded.

However, this product is not meant to be the end all be all. Rather, I was hoping this product would be a segway into a line of products that have to do with marijuana, t-shirts and also reinventing totally new products. The reason for this first product was to simply start getting people to recognize that my Instagram account is an actual business. The product can be used in Instagram photos so I thought it would be free promotion and I also thought that later on, it would be a great product to toss in with other products that people ordered, kind of like people placing candy or thank you notes into your order.

 

[croatan]

Hi m8,
It's okay when you are in USA and all of your costumers are from USA, because I believe that shipping between states is low...
Do you maybe got some tips for European countries? Because in our country shipping for some items (like marijuana pipes) would cost around $5 for inside of country, $15 for countries with which we share borders, and $30-40 for other EU countries. Should I maybe find some online stores that have features dropshipping ? Or how should I start reselling products?! Thanks !

 

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[miked_d]

Very interesting. I have a cannabis project on the back-burner. As more and more states move towards legalization, the industry will grow.

 

[Mikkel]

Very interesting. I have a cannabis project on the back-burner. As more and more states move towards legalization, the industry will grow.

That's the idea! I want to get my business established and create a brand that can be recognized nationwide(i.e Instagram.) before every single state becomes legalized. Try and get in front of the market when everything is still fresh and new.

As an update, the Logo is still being worked on, however I we have the logo designed. Now it is more about waiting for my GFX to get it on the computer and in Vector format.

I have been put it out there to some of my followers, some asking if they could help spread the name of the brand, which I gladly agreed too.

In particular, one person mentioned that he has roots in the marijuana industry over in Phoenix. Knows some local shops, dispensary owners and knows people in the community. This can be helpful to spread the word, and when I have marijuana apparel I may be able to get some help, placing them in their local shops.

 

[EricBraco]

How is your business coming along now? Can we have a update?

 

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