It goes without saying that cannabis cultivation is a lucrative market in today’s world. If you’re considering breaking into it yourself, the first thing you need to remember about the cannabis cultivation business is that it is a business; there’s a lot more that goes into it than just growing cannabis.
There are countless considerations that must be addressed before deciding to embark on such a cannabis entrepreneurial adventure, you need to consider everything from the goal of your business to the cost of growing just one plant. The reality is that business can be an uncertain venture, no matter the industry.
So if you’re thinking about starting a cannabis cultivation business, you need to start by taking the appropriate steps to help alleviate that uncertainty. The best, and truly the only way to do this is to write a classic business plan.
While writing a business plan may seem like a daunting process, a business plan is important to support the validity of your idea. It’s also the foundation for the success of your vision. Business plans don’t need to be massive volumes at first. They take time to develop and should be revisited frequently to amend with new information which will further refine your vision.
Building Your Cannabis Cultivation Business Plan
A solid business plan has many components which will need to be addressed, though you can begin with just two key components. These will help you approach your cannabis cultivation business from an educated perspective.
Before we get into them, keep in mind that you will be investing a lot, if not all, of your time, energy, and money if you decide to move forward with your idea. Because of this, before you can even start your plan, you need to think critically if a cannabis cultivation business is a good fit for you as an entrepreneur.
If your heart is set on this business and you’re worried that by writing your business plan you won’t be able to prove that your cannabis cultivation vision is feasible, that’s OK. This process is about refining your idea, not talking yourself out of it.
Part 1: Drafting Your Business Description
While final versions of business plans begin with an executive summary, we’re not going to address the summary here. It’s actually easier to write a summary once you have more information.
Instead, we’ll begin our cannabis cultivation business plan with questions that will help you build your business description. This is the easiest and most fun part of writing the plan: this is how you’re going to begin to see your vision really take shape.
So, if you haven’t already, grab a sheet of paper, and let’s get started.
Don’t Let Perfect Be The Enemy of Done
You’re going to write down the following questions and answer them. Keep in mind that your answers don’t need to be as articulate as you imagine someone with an MBA would respond. Just answer them honestly, without trying to prove that your business idea is viable.
While it’s true that people will write their business plan in a way that will convince others to invest in their idea, that’s just one use that comes later, after the initial draft.
For now, know that the more you challenge yourself on the front end of starting your business, the more prepared you will be for the obstacles which will present themselves – and obstacles always present themselves.
Asking Yourself the Hard Questions
The first question you are going to answer is going to help you define your goal.
“Why do you want to grow cannabis?” Give this some thought. If you’re interested in starting a cannabis cultivation business, there is likely something more meaningful there than just wanting to grow your favorite plant for a living.
The next question is going to help you further identify the product that you want to bring to market.
“What type of cannabis do you want to grow and how do you plan to grow it?” For example, are you interested in growing high CBD strains, or maybe high THC strains?
Maybe you’re interested in capturing other cannabinoids from your grow, or perhaps you want a certain flavor or experience. Whatever you’re looking to accomplish by growing your unique cannabis, write it down.
Also include grow details such as indoor or outdoor, hydroponic or soil. Be sure to include as much information as you can, even if you haven’t fully vetted the answers just yet.
After you’ve answered those questions, add why you are uniquely qualified to grow this type of cannabis. If you’re not, who on your team is? Where will you find the talent required to produce and end product that consumers will want?
Now we’ll move on to our first look at your competition.
“Is anyone else delivering this type of cannabis?” If so, which companies? Then ask: “Why are they growing this type of cannabis?” Your goal here is to figure out the trend/demand for your particular product. Once you’ve begun to outline these other companies, answer this: “How will my cannabis be different?”
Keep in mind, that we’re still in the process of building your business description. We’ve already begun to look at your goal, your team, and your competition. Our next question introduces you to your customers.
“Who do you want to sell your special cannabis to?” While it might be tempting, don’t just say “all cannabis users.” You need to be specific, not only because everyone uses cannabis for different reasons, but also so you know who to tailor your marketing to (when you reach the marketing plan portion of your business plan).
There are several uses for the cannabis plant and you’ll want to decide what the intended end product for your harvest is before planting your first seed.
Will you turn the harvest into smokable flower, edibles, dabs, vapes, cosmetics, livestock feed, textiles, or something else? The intended audience for your product will determine the time of harvest and post-harvest storing procedures you’ll follow when it comes time.
Part II: Cost of Goods Planning
Now that we have put some time into properly structuring your vision to become a business, it’s time to focus on the most important part of your business; the costs.
Even if you come into the cannabis cultivation business with a pile of money, without proper consideration for your costs, eventually you will run out and find yourself scrambling to increase sales to meet your bottom line.
So before you even begin to think about putting your business plan to work, you must take the time to flush out every cost you could encounter and account for it because if you error here, you’ll run out of money later and that is the worst possible outcome for an entrepreneur.
Keep in mind that the costs you are going to identify are not only the costs to grow the cannabis from your vision in Part I. You must, if you’re going to develop a sustainable business, include every single cost, from your trim bins to your lighting, all the way down to the pens you purchase to sign the check to pay for your state’s cannabis cultivation licensing fees.
This doesn’t include the potential rent checks for the perfect place you found to grow and trim your harvest. Remember, all of these costs are start-up costs; you will be making many payments before you ever make a single penny. So you will have a deficit to make up.
Don’t Forget Yourself!
It is common for entrepreneurs to purposefully avoid including a fair wage for themselves to pay for the time they spend building their business. Oftentimes, it’s to keep costs down as the business gets started.
While understandable, it’s best not to do this because it’ll cause you to scramble to make it up to yourself in the long run. You need to work realistically when dealing with your business plan. Remember, your plan isn’t to talk yourself out of your cannabis cultivation business, the plan you write is to build realistic expectations.
These expectations will help you refine your vision so you can go to market from a strong position. Business is tough enough without setting yourself back before you even launch.
If it’s helpful, keep in mind that as you grow your business you will be able to take advantage of discounts on your purchases based on volume, known as “economies of scale.” But keep this in the back of your mind. F
or now, you just want to focus on identifying the actual start-up costs associated with starting a cannabis cultivation business.
Conduct a Thorough Cost Analysis
Now that you know what needs to be done, get another sheet of paper and begin to write a list of all the things you know you are going to need to start growing your first plant and their costs. Do your research to ensure that you uncover costs that you might not have considered at first.
Again, be honest with yourself. Do not skimp on your needs in the beginning by thinking that you can “make do”. Now is the time to look at the realistic costs of growing the type of cannabis you want to grow.
Once you know your costs, you will need to estimate how much your one plant will yield. Knowing your costs and your yield combined will begin to tell you the actual value of one plant.
You will not only be able to figure out how much hundreds of plants will cost to grow, but based on these numbers, you will begin to understand how much you will need to charge, both wholesale and retail, to cover all of your costs and potentially make a profit.
Know Your Margins
Once you know your total costs to grow just one plant — including a fair hourly wage for yourself for the time you spend on administration, as well as the time it’s going to take for you to tend to that plant as it reaches maturity AND the time and the tools you will need to prep the finished flower to go to market — you will need to compare those costs to what you plan to charge for one unit of your product: this difference will be your profit margin. The formula will look like this:
Total Cost to Grow One Plant ÷ Total Plant Yield in Ounces = Total Cost Per Ounce
(You can further break down your Total Cost Per Ounce to the gram by dividing the answer by 28.35g if desired.)
Knowing your total cost for the yield received will help you begin to determine how much you must charge to break even. However, determining the price you actually charge is going to take more than just the amount of profit you’d like to make. Some questions that can help you answer this question are:
- What is being charged by your competition?
- Even though your competitors are on the shelf, is their product selling?
- Do you intend to compete on price, or will your marketing strategy include a different competitive approach?
It’s important not to forget that the cost to sell wholesale will be less than what you would charge retail. This is because your vendor is going to want the lion’s share of the profit in order to cover their costs, as well.
Summary of Cost Planning
Looking at your costs will be intimidating. While it is best to approach your cannabis cultivation business plan in a way that will help you refine your vision, sometimes you have to face the facts. It could be that your vision may be too cost-prohibitive to be a viable market option. While this is disheartening, maintain your perspective. Continue to research and see if there is another cultivation opportunity that may have better margins.
What is the Point of a Business Plan?
Just looking at two primary components of a business plan that we’ve discussed can help you determine if your idea is worth further exploration. The purpose of a business plan is to better understand how your vision could become a business, and whether the costs associated with your vision are “barriers to entry” for your chosen market.
Beginning to approach your vision in a structured manner will help you answer many of your questions before those questions become harsh realities.
As much as your passion for a cannabis cultivation business should be the most important part of your business, the truth is, the costs associated with a cannabis cultivation business are always going to be the most important part. Without knowing your numbers, you don’t have a business.
The good news is if you find that your costs are not prohibitive, you can move on to adding more pages to your business plan. You will want to look at the other elements of a business, such as your operations plan, marketing plan, a deeper competitive analysis, and more.
Plus, your initial cost analysis will play a role in each of these sections, as well. As your business unfolds you will want to revisit your business plan in its entirety, regularly. In time, you will want to revisit your plan every six months to a year so that you can revisit each section, add new information, and adjust your strategy.
In the end, having a business plan will put you leaps and bounds ahead of your competition. Not to mention ahead of other newcomers to the cannabis cultivation industry. Always be honest with yourself when it comes to the information you put in your business plan, and remember that in the end, the numbers never lie.