Why Do Cannabis Businesses Fail?

Cannabis has become a booming industry in recent years, with legalization in many states and countries leading to a proliferation of businesses in the field. However, while the profit potential is high, so is the risk of failure. Cannabis company owners are frequently passionate about their diversity of goods, products, and services, but that does not mean they are immune to blunders. Due to the stringent regulations set by legislators, several mistakes can ultimately cause the business to face serious problems. In fact, the failure rate of cannabis companies is notoriously high. So why do canna-businesses fail?

Not Having a Detailed and Precise Plan

The most successful cannabis companies are aware of their vision and have a clear-cut business plan as well as a budget plan. A thoroughly and correctly developed business strategy addresses many different processes. It should cover opening a dispensary and finding the right location, implementing a competitive weed SEO strategy, and brand market positioning, which is important for your online success and future growth goals. It is easy to get lost in the absence of such directions and make a mistake along the way.

Budget planning must lay out all costs, whether for opening a cannabis retail store, setting up required inventory, hiring new employees, or designing a unique brand logo. If executing your vision within your financial plan seems impossible, you will want to adapt it or entirely change it to avoid failure. You can still deliver the valuable experience you intended to, just in another, more affordable way. So make sure that your objectives and aspirations match your funds.

Unclear Target Market and Segmentation

The way you implement your vision and model for running a cannabis business must fully align with the audience you will be serving. Knowing and understanding your target audience’s possible needs, wants, and preferences is a big part of how you will build the client experience. In the end, this factor affects how well sales will go, how potential customers see your brand, and how happy they are with your products and services as a whole.

Determining and correctly segmenting your target audience helps create a far more customized experience. If you know who your target audience is, you can build an experience around essential things like:

  • age;
  • buying behavior;
  • specific values;
  • other preferences. 

For example, if your target audience is millennials, you should take into consideration that they may buy products online, both for delivery and pickup. Conversely, if you are targeting a baby boomer, consider that they may want a consultation to get detailed information to determine their needs before making a purchase. In conclusion, to meet your audience’s expectations, you must offer goods and services tailored to that market segment.

Compliance Issues

The cannabis industry is heavily regulated, with strict rules and regulations governing everything from cultivation, manufacturing, and transportation to licenses for retailers and dispensaries. Failing to comply with these regulations can result in fines, loss of license, having your operation shut down, or even criminal charges.

Compliance issues can be especially difficult for new companies that have not been around long enough to know how to navigate the regulatory landscape. Without the necessary knowledge, novice canna-businesses are at risk of making costly mistakes.

Consequently, owners of businesses of all scopes and sizes should gain precise knowledge of a wide range of areas, from legal and compliance cases to cultivation and manufacturing techniques. It implies, for example, making sure that the suppliers and retailers they work with are entirely licensed. Also, employees should be current on any mandated work permits per state or local laws. For instance, in Colorado, workers must have a MED license to work in the cannabis industry. That is because regulators perform audits of the employees, and if any of them operate without a license or on an expired one, the business can face legal issues.  

The best way to avoid these cases is to conduct routine audits yourself. That way, you can ensure that every person with whom you do business is up to date on work requirements.

Challenges in Marketing and Branding

Effective marketing and branding are critical components of any successful business, but they can be particularly challenging in the cannabis industry. Many advertising platforms, such as Instagram, Facebook, and Twitter, do not allow cannabis advertising at all or have stringent restrictions for running ads. At the same time, traditional advertising methods such as billboards, despite being a direct way to get the business in front of people in the local area, are not allowed in all legal cannabis areas. For example, Maryland does not allow billboard advertising. In California, a cannabis-related billboard should be at least 1,000 feet away from a K–12 school or a daycare center.

Overall, good cannabis branding helps businesses stand out from their competitors, build brand awareness and loyalty, and increase the perceived value of their products. Hence, along with developing a unique brand identity, a brand voice, and messaging that resonates with the target audience, each business owner must learn and adhere to the specific cannabis marketing rules and requirements so as not to fail a promotion campaign for their company online.

Bad Record-Keeping

Bad record-keeping can also lead to some difficulties for a cannabis business. In order to run a successful and compliant business, you need to keep track of everything, from your inventory to your financial records on orders.

Paying attention to the local requirements for this kind of information is crucial. Some states require this important data to be recorded in a digital way. At the same time, others may ask for paper copies, and some want to check both digital and paper records. Make sure not to fall behind or leave out any crucial information in case of a random inspection. Ultimately, bad recordkeeping or its absence can cost you your business, even if you have adhered to every law to the letter.

Additionally, it is beneficial to constantly keep a backup of all important data. If your company is the subject of controversy or if state authorities are questioning your actions, you may be in trouble. You certainly will not be given the benefit of the doubt if you fail to keep thorough and accurate records. Moreover, when it comes to record-keeping, it is best to make sure that all workers involved are signing off. That way, you will be aware of what occurred, when it occurred, and who is responsible.

Companies in the canna industry are expected to keep a detailed and precise record of all internal processes and operations to avoid their business failing. So pay attention to regularly keeping your records. If performed well, it can ultimately benefit your cannabis business, as it not only allows for easier tracking of the progress and growth but also helps with tax preparation, demonstrates compliance with local laws, and enables you to make educated and smart decisions about your company.

Not Staying Informed on Latest Industry News

If you fail to stay up-to-date with the significant shifts and developments as a company owner, your canna-business can be at a severe disadvantage. While several of those disadvantages could be minor, others might be destructive.

If you are not keeping up with current events in the cannabis world, you may be missing out on crucial details that could have a direct bearing on your business and its operations. For instance, you might not be aware of the last changes in state or local laws and regulations that could affect your business processes in a bad way. Therefore, whichever the case is, each cannabis company owner should keep track of legislative rules, restrictions, and current updates on them.

Also, staying informed on important industry news and meaningful changes in the competitive landscape is essential. Also, remember to keep up with the latest marketing and promotion trends to ensure your business keeps growing and developing. All that can help you make the crucial alterations to running your company correctly, whether it is online or offline.

Inability to Scale

The inability to scale is a frequent issue faced by cannabis businesses, particularly those that experience rapid growth in their early development stages. Scaling a cannabis business can be challenging due to a variety of aspects.

Apart from regulatory hurdles, one of the key factors is limited infrastructure. Building the infrastructure needed to scale a cannabis business can be expensive and time-consuming, particularly in cultivation and manufacturing facilities. Additionally, the availability of real estate and suitable properties can be limited in some areas, making it challenging to find the space needed to extend operations.

Another noteworthy aspect is finding qualified staff. The cannabis industry requires specialized knowledge and skills, particularly when it comes to cultivation, manufacturing, and compliance. Finding qualified staff with the necessary expertise and experience can be difficult, particularly in areas where the cannabis industry is new or where there is significant competition for talent.

To successfully scale a cannabis business, entrepreneurs must be strategic and focused in their approach. It may involve prioritizing markets that are easier to enter and scale, building solid relationships with regulators, investing in infrastructure and staff development, and leveraging technology and automation to increase efficiency and productivity.

Closing Thoughts

Starting and running a successful cannabis business is no easy task. It requires a combination of experience, expertise, capital, scalability, compliance, and effective marketing and branding, among many other things. Entrepreneurs considering entering this popular industry must be prepared to navigate a complex and rapidly changing landscape and invest the time and resources needed to build a successful and sustainable business.



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