Under the Cannabis Act and Cannabis Regulations, businesses (small and large) can sell cannabis both recreationally and to medical patients in Canada. Although it sounds enticing, starting a cannabis business is no easy task. There is a lot of time, money, and effort involved. Time and effort are a given when starting any business, but the experts at Cannabis License Experts are here to tell you 5 ways to reduce cash burn when starting a federal cannabis business.
1. Do your research and plan ahead
Starting a federal cannabis business is a big venture. Before you get started, it’s important to do your research and plan as much as possible. This includes compiling a list of known expenses (e.g., application fees, license fees, renewal fees, etc.). None of these expenses can be reduced or avoided, so you should plan to have the funds available for these.
There are also real estate costs, equipment, and facility build-out costs, employee salaries, and other ongoing expenses. The best way to plan and account for these costs is to have a business plan prepared. Your business plan should be clear, easy to read, detailed, and informative. It should cover strategies for achieving your objectives, as well as financial details like predicted profits and income streams and potential pitfalls in your plan. A business plan will help you plan so that you reduce the chances of cash burn when your federal cannabis business is up and running.
2. Start small and scale up when you can afford it
The excitement of starting a federal cannabis business can make you think big. Even if you want to secure a large facility with a team of employees, you should consider starting small and scaling up once you start turning a profit. This approach can help you reduce cash burn when starting up your business, because a smaller facility with fewer staff, fewer maintenance costs, etc. will save you more money in the long run.
3. Keep the number of individuals involved to a minimum
As mentioned in point #2 above, it’s important to start small and only scale your business up once you’re able to afford it. Having several employees means you’ll be spending a lot of money on salaries, insurance, and other costs. Therefore, consider keeping the number of individuals involved in your business to a minimum to help reduce cash burn. With a small, or micro, federal cannabis business, you can easily get things started with just 2-3 people involved.
4. Secure good partners
You should establish a budget for your project and source partners that can work within this. Keep in mind, that a seemingly low price upfront will do you no good if you’re constantly hit with change orders to get what you wanted, resulting in a project that balloons way over your budget. Before starting your federal cannabis business, we advise you to speak with multiple partners/contractors you may be considering and get written proposals from each of them. When you compare bids, make sure each one includes the same materials and the same tasks, so you’re comparing apples to apples.
5. Identify alternate revenue streams
When you start a federal cannabis business, it’s unrealistic to think that money will come rolling in right away. It will take time for your business to turn a profit, and in the meantime, you must identify alternate revenue streams so that you can reduce cash burn as much as possible. If you’re making money while spending money, then you’re more likely to keep your business afloat. An example of an alternate revenue stream could be renting out a portion of your facility that isn’t being used or offering a service that you are licensed to perform while you wait for full sales capacity to be granted by Health Canada.
We hope the suggestions mentioned above will help you get your federal cannabis business up and running in a way that reduces cash burn. Following these tips and tricks will put you in a better position to succeed and turn a profit sooner than later.
How we can help you
At Cannabis License Experts, we provide you with the guidance to plan your cannabis business, acquire funding, navigate the legal requirements, and acquire the appropriate license for your operations. As the Canadian cannabis industry develops, more and more licensed producers will be needed to meet the demands of consumers.
Cannabis License Experts offers support from day one of starting your cannabis business, including strategic planning, floor plan preparation, site audits, SOPs, Preventive Control Plans (PCPs), and more.
Our Edibles Compliance division can provide you with a solid plan for your edibles business to help get your products on store shelves.