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Starting small, profitable cannabis business

sully17

New Contributor
Sep 23, 2017
6
8
11
57
USA
Hi there, thanks for checking this out. My goal is to launch one or more businesses in the cannabis industry that are:
  1. Profitable, preferably from Day One
  2. Focused on providing infrastructure or services (preferably B2B)
  3. Relatively low cost to start = zero or little outside capital required
As background, I co-founded a cannabis service business in 2015 as a side project. We formed a C-corp, pitched the idea at ArcView (angel group for cannabis) and raised >$1M quickly. Off to the races, right?

We made an acquisition (all stock), changed our model to focus on the growth opportunities that would surely come with the recreational legalization of cannabis in California. We were right! The business exploded. But banks won't lend money to cannabis businesses. No credit lines = no working capital. Venture/Private Equity funding is the only way to fund growth. Our growth coincided with the election of Donald Trump and appointment of Jeff Sessions as AG who promised to challenge recreational cannabis. This had a chilling effect on private equity. We were forced to take on secured debt, which capped our ability to sell equity. We ended up selling the business to a public company just to pay our investors back, and I had to stay on to run it.

Today it's a $20M+ business. Great, right? Nope. Combination of high tax rates, low gross margins (over-investment by PE = industry focused on hyper-growth, race to the bottom economics) and lack of access to capital mean much more work to achieve operational profitability. And public equity in cannabis companies at this point isn't worth the paper its printed on.

Bottom line: I've invested a ton of time, money and passion into building a big cannabis business--from which I've gained experience, wisdom and contacts (finance, supply chain, retail, product dev., etc). But little else. Time to go back to basics.

I'd like to use this thread to encourage like-minded entrepreneurs focusing on the cannabis industry to post startup ideas, potential new models, progress or help needed on current projects. With the caveat they meet the three criteria outlined above. Hoping we can use the current carnage in the cannabis industry as an opportunity to launch some modest, cash-flowing, wealth-building long term businesses in this space.
 

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Private Witt

Bronze Contributor
Read Millionaire Fastlane
Speedway Pass
Feb 20, 2018
181
314
168
Seattle
Interesting story and under normal circumstances would laugh someone out of the room saying they will be profitable in the cannabis industry on day one even with funding, but seems like you have a grip on the industry and could be possible.

I own a cannabis media startup that has a publication in stores and also I host cannabis/music events, mostly rap. Will read your post tomorrow when less tired and hope you come back as this forum needs more cannabis experienced people as the space is going to be massive and the opportunities are endless but yet the failures beyond immense. Is like poker when the majority of players are called dead money before the first card is dealt in a tournament.
 

Lucky Lu

Bronze Contributor
Read Millionaire Fastlane
I've Read UNSCRIPTED
Nov 2, 2019
118
109
68
Newport Beach, California
Hi there, thanks for checking this out. My goal is to launch one or more businesses in the cannabis industry that are:
  1. Profitable, preferably from Day One
  2. Focused on providing infrastructure or services (preferably B2B)
  3. Relatively low cost to start = zero or little outside capital required
As background, I co-founded a cannabis service business in 2015 as a side project. We formed a C-corp, pitched the idea at ArcView (angel group for cannabis) and raised >$1M quickly. Off to the races, right?

We made an acquisition (all stock), changed our model to focus on the growth opportunities that would surely come with the recreational legalization of cannabis in California. We were right! The business exploded. But banks won't lend money to cannabis businesses. No credit lines = no working capital. Venture/Private Equity funding is the only way to fund growth. Our growth coincided with the election of Donald Trump and appointment of Jeff Sessions as AG who promised to challenge recreational cannabis. This had a chilling effect on private equity. We were forced to take on secured debt, which capped our ability to sell equity. We ended up selling the business to a public company just to pay our investors back, and I had to stay on to run it.

Today it's a $20M+ business. Great, right? Nope. Combination of high tax rates, low gross margins (over-investment by PE = industry focused on hyper-growth, race to the bottom economics) and lack of access to capital mean much more work to achieve operational profitability. And public equity in cannabis companies at this point isn't worth the paper its printed on.

Bottom line: I've invested a ton of time, money and passion into building a big cannabis business--from which I've gained experience, wisdom and contacts (finance, supply chain, retail, product dev., etc). But little else. Time to go back to basics.

I'd like to use this thread to encourage like-minded entrepreneurs focusing on the cannabis industry to post startup ideas, potential new models, progress or help needed on current projects. With the caveat they meet the three criteria outlined above. Hoping we can use the current carnage in the cannabis industry as an opportunity to launch some modest, cash-flowing, wealth-building long term businesses in this space.
I collaborate with a Cannabis legal consulting company and a specialized law firm in South America. Let me know if I can be of any help to you brother. Best of luck!
 

Devampre

Bronze Contributor
Read Millionaire Fastlane
I've Read UNSCRIPTED
Jan 6, 2016
135
113
73
24
Canada
Are you keen on the business being profitable from selling cannabis itself or are you open to profiting from a product/service in the industry that relates to cannabis?

I'm not informed enough on your State's laws, but perhaps there are ways you could reach profits selling paraphernalia or something that solves a particular pain of consumers; that wouldn't require nearly as much capital to get started. And then perhaps profit made from that business could be invested into another cannabis business?
 
OP
OP
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sully17

New Contributor
Sep 23, 2017
6
8
11
57
USA
Are you keen on the business being profitable from selling cannabis itself or are you open to profiting from a product/service in the industry that relates to cannabis?

I'm not informed enough on your State's laws, but perhaps there are ways you could reach profits selling paraphernalia or something that solves a particular pain of consumers; that wouldn't require nearly as much capital to get started. And then perhaps profit made from that business could be invested into another cannabis business?
Service (B2B) strongly preferred. Making cannabis infused products or selling flower are a world of hurt. Services = selling shovels to miners.
 
OP
OP
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sully17

New Contributor
Sep 23, 2017
6
8
11
57
USA
If it's so hard to get credit lines for a Cannabis company, as you found, why not set one up? Find a rich investor that will bankroll you and go lend to Cannabis companies.
Yes, hard money lending is definitely an idea. You can clear 20-25% doing bridge financing in cannabis. Personally as a guy who makes/builds things, this isn’t my first choice but I know people who make a good living lending cash to desperate cannapreneurs.
 
OP
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sully17

New Contributor
Sep 23, 2017
6
8
11
57
USA
Interesting story and under normal circumstances would laugh someone out of the room saying they will be profitable in the cannabis industry on day one even with funding, but seems like you have a grip on the industry and could be possible.

I own a cannabis media startup that has a publication in stores and also I host cannabis/music events, mostly rap. Will read your post tomorrow when less tired and hope you come back as this forum needs more cannabis experienced people as the space is going to be massive and the opportunities are endless but yet the failures beyond immense. Is like poker when the majority of players are called dead money before the first card is dealt in a tournament.
Hi Pvt Witt thanks for your response.
Agree with your comment on timing. But I think now is the time. Pubs/events is a good, scalable track. Are there other areas you’ve considered or explored in cannabis?



Interesting story and under normal circumstances would laugh someone out of the room saying they will be profitable in the cannabis industry on day one even with funding, but seems like you have a grip on the industry and could be possible.

I own a cannabis media startup that has a publication in stores and also I host cannabis/music events, mostly rap. Will read your post tomorrow when less tired and hope you come back as this forum needs more cannabis experienced people as the space is going to be massive and the opportunities are endless but yet the failures beyond immense. Is like poker when the majority of players are called dead money before the first card is dealt in a tournament.
 

Private Witt

Bronze Contributor
Read Millionaire Fastlane
Speedway Pass
Feb 20, 2018
181
314
168
Seattle
Hi Pvt Witt thanks for your response.
Agree with your comment on timing. But I think now is the time. Pubs/events is a good, scalable track. Are there other areas you’ve considered or explored in cannabis?
Totally agree, the time is right now, is so amazing watching as Im now entering year 5 in the industry and stunned what Im seeing. Once this goes nationwide and there is inner-state product commerce our country will never be the same. Millions of jobs, mass uptick in entrepreneurship and community building rarely seen around an industry.

In cannabis, my only interest is with publishing and events, as also getting deeper in music promotion (mostly rap, but want to move towards rock and reggae). I wont lie my head feels like its going to explode as the learning curve in both industries is so step and the shade level is so immense in all directions that I'm literally at 5% of my capabilities due to not wanting to implode, but I see some support coming in many places which will help me open things up and be able to scale properly when the time is right.
 

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