Ask Our Experts 3/16/20: Entering the Industry and a New Market

 

Q: As a South African with long experience in sales, I would like to become a cannabis broker; where should I begin?  

By New Frontier Data

A: Worldwide in countries that are legalizing medicinal and industrial cannabis, New Frontier Data has been seeing surging interest among investors and entrepreneurs seeking opportunities in the industry. For stakeholders in emerging markets, there are several fundamental considerations to address when venturing into the industry:

1. Do your homework.  There is no substitute for thoroughly researching the market. The industry is young and moving quickly, and the internet offers an inexhaustible source of insights to the market’s evolution. Keeping a pulse on fast-moving developments is critical to understanding where the opportunities exist today, and where the industry will gravitate tomorrow.

2. Connect with industry professionals: Beyond seeking out people already in the industry by generally going through social networks (e.g., LinkedIn, Facebook, Twitter), joining LinkedIn’s cannabis groups can be a good way to quickly connect with the broader community, and glean from discussions about the issues most salient to the industry.

3. Attend industry events: The number and nature of cannabis events held globally continues to grow, offering industry aspirants diverse options to network, learn, and build community. While coronavirus may disrupt in-person event attendance in the near term, an array of webinars, podcasts, and other virtual events are filling the vacuum until normal networking opportunities resume.

4. Challenge the status quo. Many aspects of the cannabis industry have evolved since the decades when cannabis was illegal. The popularity of indoor cultivation, for example, was fueled by the desire among illicit growers to conceal their grow operations, but with legalization outdoor and greenhouse cultivation has begun to flourish. Similarly, though vapes held a negligible share of sales but five years ago, they now account for approximately 30% of the market. Pre-rolls, long an afterthought using leftover flower, have now become a prime category capturing 10% of sales. Consumer preferences are influenceable, for the right product marketed the right way. Significant opportunities remain to define new product categories and transform the consumer experience.

Furthermore, broader disruptions caused by the coronavirus pandemic will create opportunities for innovation and new ways of doing businesses, with a focus on digitization of processes, virtualization of operations and communications, and systems automation.

5. Leverage expertise, experience, and passion. Entrepreneurs often focus on the plant-touching opportunities in the industry (e.g., cultivation, processing, retail), working aggressively to build expertise in those areas. However, industry-related opportunities extend well beyond cannabis consumer products. As a commercial ecosystem, the industry remains in its infancy. Because cannabis has long been illegal, cannabis as a consumer product has not benefited from all the influences of technology and innovation which have transformed virtually every other aspect of the consumer economy. The legalization of medical cannabis in California in 1996 marked the birth of a legal cannabis in the U.S. Nevertheless, it took until the 2014 fall elections for Colorado and Washington to legalize cannabis for adult use. and for significant capital to subsequently begin flowing into the industry. While much of the initial investment has been channeled toward building operations – cultivation and retail in particular – the industry is entering a new phase of maturation with new focuses and investment in the consumer experience.
6. Assemble strong teams: With the market undergoing a singular moment of upheaval, having a strong team has never been more important. Professionals who are highly adaptable, able to work effectively during uncertainty, and have experience in risk and crisis management will be especially valuable during the next 24 months.

7. Play the long game. The uncertain impacts of the coronavirus pandemic – on top of capital markets which had already been tightening — will create unprecedented near-term disruption to global economic systems. The cannabis industry will be no exception. Still, the long-term outlook for cannabis is strong. Overall consumer demand for cannabis is rising, and – where legal – demand for regulated cannabis is growing quickly in the U.S. and internationally, as it will likely rise significantly in the coming years. Further, cannabis is a fixed cost in most consumers’ budgets, so spending will be sustained at or near current levels even as broader consumer spending retreats. In the near term (with virus-related restrictions and disruptions), many new markets are facing delays in operationalizing, with disruptions to the capital markets impacting liquidity. Thus, stakeholders should plan for slow initial growth, and ensure that their ventures have the capital reserves to survive an extended market ramp-up period. However, companies should also be strategic in planning for durable changes in social and consumer behavior triggered by the pandemic, and the surge in growth as the markets rebound.