It happens every time a state legalizes medical cannabis: eager entrepreneurs with dollar signs in their eyes line up to get in on the game. Very few of them actually make it. Why? Because getting into the medical cannabis business costs money – a lot of it. It is not as easy as growing a few plants in your garage.
Most states that allow medical cannabis divide the industry into three primary businesses: growing, processing, and retail dispensing. A few states also recognize testing as a separate business. Each type of business is subject to its own financial constraints.
Also understand that state regulators almost always require entrepreneurs to demonstrate that they have sufficient financial backing before giving the okay. On the positive side, it’s not necessarily hard to find venture capitalists with money to spend. On the negative side, their money always comes with strings attached.
Pay for Your License
Before any venture capitalist is going to sink tens of thousands of dollars into your business, you have to obtain a state license. But guess what? Those licenses can cost thousands of dollars themselves. Right off the bat, you need to have a good chunk of change laying around.
Licenses are not cheap for a reason. State regulators use their licensing regimes to control who gets involved. First of all, they do not want fly-by-night operators setting up shop, running out of money, and skipping town. Second, they want to control the number of cannabis-based businesses operating in their states. High licensing fees are one way to accomplish both tasks.
Buy or Rent a Facility
Once you have a license, you have to buy or rent a facility to work in. Growers also need land, unless they intend to grow their plants indoors. Either way, acquiring the necessary space will not be cheap. Property owners know what a lucrative business medical cannabis is. They charge accordingly. Whether you rent or buy, be prepared to shell out the dough.
As a side note, you might find that property owners in your area are reluctant to get involved. They don’t want to take whatever risks they perceive go along with medical cannabis. That means the number of properties you have to choose from could be smaller than you expected. What does that mean for cost? The price goes up as supply goes down.
Moving on to Equipment
A rented facility now has to be filled with equipment. The actual types of equipment you need will depend on the business you’ve chosen. For example, processors need a full range of equipment covering everything from extraction machines to testing stations.
Cedarstone Industry is a Houston company that makes extraction equipment, among other things. They say customized machinery can easily cost hundreds of thousands of dollars per piece. You can go cheaper, as in tens of thousands of dollars, but you are not going to be able to produce the same volume. If you want to go big, you have to spend big.
Hire Your Staff
Finally, you have to hire the people who will do the actual work. Production workers and support staff will not cost too much, relatively speaking. But be prepared to pay dearly for scientists, engineers, and cannabis experts. Triple-digit salaries may not be out of the question.
None of this takes into account all the little things that go into running a business. You are looking at office supplies, utilities, and on and on. Medical cannabis is a profitable business. But in order to make a lot of money, you first have to spend a lot of money.
