Writing an excellent commercial cultivation business plan puts you on the path to financial success. Unfortunately, many entrepreneurs new to the cannabis industry don’t have business backgrounds. You might love growing and sharing cannabis, but that doesn’t automatically mean you know how to run a business well.
Before you commit a significant amount of money, look for these seven glaring problems in your commercial cultivation business plan. A lot of people fail in the industry because they don’t identify and fix these issues. Addressing these issues can’t ensure financial success, but it will give you a much better chance in a competitive field.
1. Your Business Plan Underestimates the Cost of Equipment
Make sure the business plan includes accurate pricing for every piece of equipment you will need to cultivate cannabis. The types of equipment you need can vary depending on your growing method. Typically, though, your commercial cultivation business plan should include quotes for:
- Lighting systems
- Irrigation systems
- Dark rooms
- Computers that help automate processes
- Heaters and coolers for controlling the temperature
- Tables and shelves
- Extraction systems
You might as well get quotes for the products and supplies your grow operation will need too. Individually, items like substrates, fertilizer, seeds, clones, and pots may not seem expensive. When you buy hundreds or thousands of them for commercial cultivation, though, the cost looks much more intimidating.
2. Your Business Plan Doesn’t Include All Taxes
Many state governments legalized cannabis cultivation and sales because they wanted to increase their tax revenues. Compared to the tax rates for other industries, cannabis tends to get charged quite a lot.
Unfortunately, the amount of tax that you will pay depends on your location and the size of your commercial operation. Since each state charges different percentages, it’s impossible to say how much you will pay.
Cannabis taxes are complex, so you might feel tempted to avoid the subject. That’s a big mistake. If you can’t estimate your tax burden, you can’t write a business plan that shows how you will generate profits.
3. You Haven’t Had a Cannabis Lawyer Review Your Commercial Cultivation Business Plan
Since you’re interested in the cannabis industry, you probably already know that your business will have to follow strict laws and regulations. Again, it’s a frustrating topic because the laws differ in every state. One state might not have a problem with you growing cannabis at your storefront, while another will have a law that prevents you from growing the products you sell.
Unfortunately, you have to follow regulations regardless of whether they make sense to you. Your business plan also needs to include a section explaining how you will stay in line with your state’s laws.
Feel free to write a rough draft of this section, but don’t include it in your official commercial cultivation business plan until you’ve had a cannabis lawyer review every word. The section might come back in a completely different form than your original draft. Feel lucky that you hired a reliable cannabis lawyer willing to take the time to write a section that will appease regulators. Otherwise, you might not even qualify for a cultivation permit.
4. Your Business Plan Doesn’t Compare Buying and Leasing Space
There are pros and cons to buying or leasing space for cannabis cultivation.
When you choose to buy warehouse space, you don’t have to worry about your rent going up every year. You also get a piece of green zone real estate that will probably become more valuable over time. Then again, you have to pay for building repairs and maintenance. You also need a sizable amount of cash to purchase the real estate.
Leasing space means you have the freedom to move as your business grows. You also get to avoid the expense and headache of maintaining a property. Then again, you will always pay the owner rent. You might stay in the same location for decades, but you will never own the property. At least you don’t need access to extensive capital to buy the building outright, though.
Since buying and leasing will affect your finances, you need to include your decision and its financial effect in your commercial cultivation business plan.
There isn’t a right or wrong answer. You simply need to make a choice, understand how it will influence your money, and consider that influence when you write your business plan.
5. The Business Plan Doesn’t Include Every Step in Your Cultivation Process
Licensing agencies and potential investors want to ensure your business understands the most effective ways to produce cannabis products. You can prove your knowledge by including every step of your cultivation process.
Keep in mind that cultivators don’t always take the same approach to growing cannabis. For example, your business might have a room where you clone plants that have performed well in the past. A different grower might purchase seedlings from a company that fulfills that part of the growing process.
If you plan to take an innovative approach that most commercial cultivators do not use, include a proof of concept section in your business plan. You might have found that adding a specific organic fertilizer increases your yield significantly. If other growers don’t usually follow that advice, conduct some experiments so you can provide evidence that your approach gets good results.
6. You Haven’t Included Your Proof of Capitalization
Licensing agencies often want to make sure you have enough money — or at least a line of credit — that can get your business started. Your proof of capitalization requirements can differ depending on what state you want to grow in. Typically, you can expect to need access to at least $250,000 before a state licensing agency will approve your application.
Ideally, you should have proof of capitalization in excess of your state’s requirements. For example, if your state wants to see proof that you have $250,000, you should strive to show that you have access to $300,000 or $350,000. The more money you have on hand, the more likely it is that the agency will grant you a permit. After all, they don’t want to waste time processing the applications of companies that don’t have enough money to get their grow operations started.
7. Your Plan Misses Critical Services You Will Need From Professionals
Even if you already have staff members committed to working with your business, they probably won’t have all the skills you need to bring your commercial cultivation operation into compliance with the law and give it an excellent chance for success.
When finalizing your commercial cultivation business plan, include information from professionals known for their areas of expertise. Examples might include:
- Plans from a construction contractor showing how you plan to arrange your growing system and how much it will cost to build.
- A financial analysis from a cannabis business consultant that shows you have a solid plan for reaching your financial goals.
- A report from a cannabis lawyer showing that you have processes in place to ensure your business follows state and local regulations.
You could write a successful business plan without this information, but it never hurts to give regulators extra assurance that you take the process seriously. A lot of people want to get into the cultivation industry. Reaching out to professionals and getting their written opinions displays your commitment to starting a cannabis business that will contribute to the state’s revenues, follow laws closely, and continue to grow.
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