How to Become a Successful Cannabis Operator in a New Market

Becoming a successful cannabis business in a new market isn’t as straightforward as most would-be operators think – strategic planning and intelligent execution are crucial from day one. In this exclusive Rx Green Technologies blog, our CEO, Gary Santo and Head of Product, Sean Cute lay out some of the most important things you need to know to succeed when you’re entering a state that’s just getting ready for legal cannabis sales. Both Gary and Sean bring many years of hands-on experience running licensed cannabis operations and know exactly what it takes, and where operators typically stumble as they try to carve out a lucrative place in a new market. 

Plants grown in Rx Green’s RTU bags at a facility in Denver, Colorado

Understand The Macroeconomic Market Trends First

Congratulations – your state finally passed adult-use cannabis laws and is implementing them. If you’re lucky, you won a license and are actively planning your entry into one of the most exciting times new market cannabis business owners and operators get to experience: the greenfield opportunity of high per-pound prices and moderate competition (at least for a little while). Chances are you’ve jumped through more hurdles than you could have possibly expected, and it’s time to start reaping the rewards.

But wait, your financial projections don’t expect the currently rosy price per pound to last for years, right? And have you implemented strict standard operating procedures that are pre-formulated for efficiency? Have you triple checked your consumable costs in your garden against other, perhaps more affordable options? 

It’s easy for new operators to sleepwalk into a financial nightmare down the road if you think your state is going to play out any differently than any of the other, now mature, markets have. The same thing happens in almost every state, with only a handful of exceptions. First, jubilation. Then, increasing pressure from competition coupled with cratering prices. Followed by shock that it happened as quickly as it did, and that businesses across the landscape were unprepared despite nearly a decade’s worth of economic data from other states pointing to the same conclusions.

What all this means is that you should be planning from day one for price compression and competition for shelf space, not in year two or three when it’s already happening. Circle up with your leadership team early on so that everyone knows what to expect. A couple of major tips and tricks that can help you succeed when prices degrade are:

• See where your financial model breaks when the price per pound starts diminishing and have a plan early on how your company can trim expenses
• Ensure that you have a deep bench of retail partners or a plan to acquire them and are consistently able to supply them; once you lose shelf space, it’s hard to get back
• Make sure you are going to grow and sell products that people are excited about, but don’t be afraid to pivot quickly if a particular strain or SKU doesn’t perform well

A mature cannabis flower just before harvest

Start Small and Scale Intelligently

One of the absolute best things you can do for your new business is to start growing at a reduced scale and put out products quickly with a phased approach instead of building out every last square inch of your license before a single pound hits shelves. It can be difficult to resist the potential revenue from constructing your entire canopy square footage from the jump. But, figuring out how to correctly manage your facility and make key adjustments before you have a large number of rooms running is strongly suggested. That helps you get money in the door earlier and enables you to work out the kinks midstream at a smaller scale, rather than having your entire facility run into unforeseen problems.

This can also be a strong advantage for new market entrants before adequate retail, transportation, and testing infrastructure is available, which can hamper the maximum potential sales volume your license is capable of delivering for you when fully built out. These things take time to come online in many markets, and especially in new ones where everyone is trying to figure it out. This includes your regulators, who are likely inexperienced and overwhelmed, so keeping your overhead lower to start can be a massive advantage over less flexible competitors. That way, you can scale as there is room to do so, and to ideally self-fund as much of it as possible to avoid taking on additional debt or giving up more equity.

Rx Green cannabis nutrients being adjusted for feeding

Know Your Facility Inside and Out

Every building has different quirks, even if you were lucky enough to construct yours from scratch. Outdoor and greenhouses have the same considerations, just in different ways. What direction does the wind blow, and is it helping your HVAC, or hurting it? Are you located next to other buildings that put off heat? If you’re leasing, do you know your lease terms inside and out? Do you have tenant improvement funds you could keep in reserve for building new rooms, or are you positive you’re on the same page with your landlord as to what types of tenant improvements they’ll pay for?

Knowing exactly what your facility is capable of and making adjustments to increase efficiency instead of just expecting your team to have it dialed in perfectly from the start is critical. Until you start running rooms and knowing how your plants are going to react to their environments, it’s impossible to predict how well each room will grow. You may also find that the same strain growing across an entire room has different results depending on environmental factors that might be outside of your control, because a room has a particularly cold or warm area, for example.

One of the easiest ways you can introduce efficiency from day one is to skip the headache of soil mixing and potting by using our RTUs, which are pre-hydrated coco grow bags that you can plant in just a fraction of the time any other medium requires. They can help save quite a bit in labor costs, which is one of the principal expenses growers will see on their P&Ls every year.

Do you have a strong facility manager on staff, or are you relying on contractors to come fix anything that breaks? It’s also a great idea to hire a full-time facility director who can help with just about anything available, so you aren’t at the mercy of scheduling electricians or plumbers who are typically swamped. 

You never know when something might go wrong that could change the course of an entire room’s progress, and potentially a large part of your annual harvest going south.  Ensuring you have plans in place to fix everything and reduce footsteps between rooms and areas as much as possible is a sure-fire way to prevent problems from happening in the first place.

Understand The Rules Inside and Out, Backwards and Forwards

There is no easier way to screw things up than to play fast and loose with the rules, or to simply not totally understand them in the first place. Like we noted previously, there’s a good chance the regulatory body you’re interfacing with is building the plane as they’re attempting to fly it and are getting pressure from all directions: the governor wants tax revenue yesterday, new operators are trying to figure it out as they go, and bad actors are bending the rules. Give them a little grace, and no matter what, always be prepared for when inspections happen.

Having key stakeholders and leadership understand the rules your company is beholden to is mission-critical. If your grow gets put on ice because you didn’t understand pesticide application limits, you can be in big trouble faster than you can blink. Unfortunately, the legislative statutes and rulebooks are typically more boring to read than watching paint dry, but it can still be a costly mistake to outsource this and pay compliance consultants to figure everything out for you. While they can be very helpful to get your SOPs set up more quickly, every employee needs to have a baseline understanding of the rules that govern which part of the operation they’re responsible for.

Lastly, be prepared for the rules to change and for your team to have to scramble as a result. In most cannabis markets, everything from packaging requirements to allowable SKUs will evolve at some point, which can render thousands or tens of thousands of pre-printed packages obsolete. Essentially, the only constant you can expect is some degree of change in the first handful of years, or at least until things smooth out and everyone figures out how to play nicely with one another. 

The under canopy of plants on trays grown in RTU bags

Other Practical Post-Launch Suggestions

Even the most experienced growers are going to need some time to adjust to the rooms they’re working with in a new buildout, which is true even if it’s done exactly to their ideal specifications. Brand new equipment, sensors, and environmental controllers take time to learn, so we strongly suggest not starting off with difficult-to-grow strains. Start with softballs that you know your grow team can handle, and only then should you start to work towards more exotic options that tend to be finicky on a good day. Getting a few solid harvests under your belt is a surefire way to build confidence and get revenue flowing. 

One of our last but most important suggestions is to really be picky with your vendors. For everything from lights to nutrients, there are many options, but working with suppliers that treat you like a strategic partner and not just another customer is essential. That’s where Rx Green Technologies comes in. We don’t just provide high-quality growing supplies at reasonable prices; we’re your partner in success and offer dedicated expert customer service to ensure you get the support you need for every product we sell.

Getting stuck without the help you need at the beginning of your journey is not just a pain; it can be financially destabilizing if your operation hasn’t  gotten its footing yet. Whether you need nutrients, growing media, or just some troubleshooting expertise, we’ve got you covered, so contact our grow experts today to get a quote for your garden.

Editor’s note: this blog is based on our first Boots and Suits video, “How to Build a Business in New Markets,” which is available on YouTube.