Profit or Promise ? In the past three years, we’ve worked in the Cannabis and Hemp Industry, and would like to ask the question, “Who is actually making a profit – the small entrepreneur, or big corporate ?”
All you see on the news, online, and in print media is the hordes of cash, and instant millionaires. But is it true ? It’s a difficult question to answer, since the industry is still very secretive, and coming out of the black and grey market.
In this review, we’ll start with the status quo, then look at the industry and who is making money.
The Addiction Industry
As with any Gold Rush (and the Cannabis industry is no different) there is the promise of fast wealth, and lots of cash. The reality is that lots of cash is just cash flow. Most groups in the industry have negative cash flow. Most so-called consultants are more myth propagators, than profit instigators. Many in the industry unfortunately only exasperate and perpetuate the myth, and enable well-meaning entrepreneurs to spend more cash, instead of tried-and-true profit making procedures. The logic here is you need to spend more, to earn more. But in reality, it doesn’t work that way.
Tricks of the Trade
If you’ve sold equipment, or have worked with the less-than-professional people in the industry, here is what you can expect. It’s right out of the addictions playbook. It includes trying to manipulate, distract, doubt, and display behavior that is unlike anything you’ve seen.
Here is a list the red flags that you are working with a nonprofessional, that is wielding the addictions behavioral sword, and how to work with this group of people.
It’s Your Problem, Not Mine: It’s not untypical for the nonprofessional to blame others for their problems. If something is not working to their liking, the first line of defenses is a good offense, and that is to make the problem, your problem.
The best response is to clearly explain (written is best) and outline to the individual expectations, procedures, and a clear path of success. If the individual does not follow those guidelines, then they can expect to fail. It’s almost like coaching. Offer help and assistance, but recognize when people refuse to listen to directions, and point that out.
It’s a Warranty Issue: “Something is wrong with your product.”
This is probably the most typical statement you’ll get, when people want something free.
The first knee-jerk reaction for a nonprofessional, is to look everywhere, but from within. Greed based businesses have little time for learning, training, operations, or listening to good advice.
Your best response is to make training mandatory, and part of the warranty. Clearly outline what is, and is not included with a product purchase, and support. Make a point of explaining what consumables are, and typical operational costs.
Training – What is That ?
Education and training are essential foundations for success. With complex machines, it’s a necessity for safe and proper operation. The faster you learn how to operate properly, the faster you make product, sell to a customer, and make money. Just because the nonprofessional has self- proclaimed experience, means little in the case of operating a new machine, process, or procedure. Rest assured, it will become your problem when failure ensues. While we are a big believer trial- and-error, that really belongs in product development, not in learning to operate a machine, process, or way to do business.
Aggression – Phone Versus Email: It all starts with a simple phone call. When the nonprofessional doesn’t get the answers they are looking for, their aggression increases and the volume gets ramped up. Then, expect the anger escalation to start flowing.
Your best response, and option here, is to simply hang-up the phone, call block the person, and send them a email which outlines the rules for courteous communications. Email is always preferred since you can refer back to what was actually written down. It reduces the gas lighting (revisionist history). The angry nonprofessional likes to use the phone. It’s a people manipulation technique to get very upset, and create doubt, and what better way than to use the phone. It provides immediate gratification to the nonprofessional.
Trust But Verify: In the new age of social media, false truths, fake news, and rearranging the truth, you can’t be too sure what you are being told. This is ramped up in the Cannabis industry.
Verify what people are telling you. Don’t believe what people say, unless you can actually see the evidence, that it’s true. Unfortunately, in our current political and social climate, people lie all the time. Since there is little consequence to not having any character, people get away with it, and make it a habit. Surround yourself with good- character people and businesses. If somebody is lying to you, move on.
Create Doubt: Probably the best tool for the nonprofessional, is to create doubt. This type of behavior is meant to produce guilt, shame, and very judgmental that something you are doing is wrong. It begets experience, which the nonprofessional lacks, and so it becomes your problem.
When the nonprofessional creates doubt (successfully), it opens the door for free time,support, replacements, refunds, harassment, etc. The best way to respond to doubt, is to clearly outline (written) expectations, outcomes, procedures, and becomes great drama-free conflict management. We’re all here to make money right ?
Who Makes Profit ? That’s a great question. The simple answer is that those who make profit, have a good customer base (who are willing to pay more for your product, or are loyal to your product, than anybody else). This means you have to have a better quality product, regardless of price. If you are running a CO2 extraction business, you are in direct competition with the BHO extractors, who can blow out their concentrates and oil at a much lower price. But that comes at a cost – lower quality oil (contains heavy metals which are bad for the consumer) and have little to no shelf-life (product goes bad quickly). The most important thing is to listen to your customers, what they want and need.
Does Anyone Make Money ? Lots of cash exchanges hands. But the market is flooded with product. Lots of supply, means low or no margin, so very few (if any) make profit. For the larger corporate groups that are vertically integrated, including a dispensary to sell their product, yes. Does a cultivator make money ? No. Or at least we have yet to see anyone that does. With lots of product, wholesale prices are low, and with low wholesale, the grower makes little, or nothing. Most growers pay zero attention to managing utility or production costs. Like any other business, you need to produce lean.
Why Do Cultivators Continue To Grow, If They’re Losing Money ?
It’s the promise of better things to come. We always hear, “Just wait until it’s legal all over the country.” Looking at that logic, the supply will only increase, and profit margins will go further south (decrease). As smaller producers lose money, or go bankrupt, they are swallowed up and engulfed by larger corporate groups. Market consolidation begins. It’s not easy for the small entrepreneur to make any money, unless they are well verses in a profit-based business organization, that has a bottom line that is black, not red.
Inefficiencies Add Up: With huge amounts of cash exchanging hands, it’s not uncommon for inefficiencies, and poor business practices, to add up. It adds up to losing money. Then groups continue to hemorrhage money, hoping things turnaround, which they don’t. Have a business plan, that outlines when to get out, or when to expand. Make goals, as well as limitations. Always run with the attitude, “Can I provide the same product and quality, but which costs me less ?” Never stop trying to look for alternatives where others do not, and look to produce at lower costs. Saving a few dollars here and there really add up at the end of the year.
Outdoor Versus Indoor Grow: If you’re a purist, then you appreciate the outdoor grown product. But the reality is that most consumers don’t care. Trying to make a profit on a one crop per year model, doesn’t make money, unless you have a niche market. A indoor grow, that has a staggered harvest for a weekly or biweekly basis, becomes a potential profit machine. Look around who is selling the most product (at a profit) and emulate what they do. Success begets success.
Hydroponics Versus FogPonics: The most efficient energy, grow time, and oil production model, is FogPonics. Set up on a staggered growth and harvest schedule, this can provide a weekly harvest production format, that keeps the fewest amount of workers, busy all the time. It has the lowest energy consumption in the industry (this would apply to both cannabis and vegetables). The basic concept is vertical using PVC piping, sharing one intensive HID lighting element. FogPonics can reduce water and nutrient cost by up to 80 percent, and requires less cooling (HVAC). It has 10 times the production versus other grow formats. LED’s only work for seedlings and veg stage.
Taxation Without Representation: Yes, your local government will make lots of money on your licensing fees, and fees related to production. The downside to vertical farming is that many municipalities will base licensing fees on a per-square-foot basis (on a three dimensional space), so if you go vertical, you get penalized and charged more. Before you start a grow or extraction business, check on local licensing costs. You may be surprised how expensive it is. Be sure to be clear on licensing costs per square foot, and if that includes vertical space.
Target Oil Production And Varieties That Produce Faster: Some varieties of Cannabis produce the maximum amount of trichomes at 75 percent of their growth stage, which means that the specific variety can be harvested for oil extraction before the full growth, which results in little additional oil, but more biomass. In this case, focus on Indica (Cinderella). Faster indoor growing varieties will produce consistently more oil than outdoor grows. The name of the game for profit is production. Look at varieties that get you to your end product faster.
Cannabis Alternative – Oregano Oil Extract: Interested in other options for cultivation and oil extraction ? This is one of the most disruptive industry secrets, which will be out soon. Oregano oil extracts may have the same, or better medical implications than CBD’s, and there’s already lots of research on it. Nobody is doing CO2 extraction’s for Oregano oil, it’s all steam distilled, which damages the valuable terpenes and other valuable compounds. CO2 extraction’s preserve the valuable terpenes, and other antioxidant components. Best of all, it’s legal everywhere. Who knows, you might come up with the next best pizza tincture !
It’s A Niche Market: Why produce a Budweiser, when you can cultivate a fine Bourbon? Seek out niche markets. Less competition, and higher end prices, give you more opportunity for profit. Make it a habit to ask your customers what they want, what they like, and what they don’t like. Marketing is all about discovering what people want, and how to sell them that product. Don’t make a product, just to sit on it hoping prices will get better. The customer desires, as with your product, have a shelf-life. You need to look beyond what is out there now (and not selling well). It’s a technique which you have to train yourself to do, but has great rewards.
Conclusion: If you are entering the Cannabis space, or are looking for avenues to actually make a profit, and stop the hemorrhage of negative cash flow, educate yourself. Ask questions. Visit and tour successful operations. Trust only what you can verify.
Running a profitable business is not an endgame, but a dynamic process of learning to take what doesn’t work, and building on what does. Don’t repeat or recycle failure, repeat success.