With the growing interest in the cannabis industry, there’s a wide range of people that are excited about being in it. On today’s show, Tony Frischknecht describes the three types of cannabis business owners and share his thoughts in between them. At the end of the day, there is no perfect person to work with. But you got to decide where your dollar goes the furthest and how you can be successful.
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Breaking Down The Cannabis Business Owner
Don’t Be Caught Without The Right Advice, It Often Spells The Difference Between Failure And Success
I’ve got a great show for you. I am going to breakdown the cannabis business owner as it is. There’s a wide range of people that are excited about being in the industry. I’m going to give you the three types, share my thoughts in between them and describe each one of them for you. It’s very useful knowledge for you to understand the day in the market we’re sitting in. If you look back at these several months, it might be different, but we’re in this steady pattern of entrepreneurs that are either creating something from scratch or buying a company up and building it from there.
The Underground Business Owner
Type one is what I would like to call the underground business owner. It could be thinking about moving into the regulated market. They’re unsure how and where they’re going to do this, but they know that’s the only way to survive because the reality is coming that they’re not going to be able to continue doing business as they’ve been doing for so long. This business owner is going to have to make some tough decisions. One of the scariest parts about being in this area is understanding the authorities and dealing with police. Also, dealing with the building department and all these regulatory things that come into play when you step into the legal market. This causes a lot of stress and anxiety. I’ve known many who’ve gone through it. I’ve known many that decided to continue staying in the black market because it was too scary.
The next thing would be a small cash investment. These are essentially one-man crews that are thinking about going for the big time. At that state, you might have $10,000, $20,000, maybe even $50,000 saved up depending on how good you are with your money. A lot of underground people would spend it as they made it, which I’m not saying anything. That’s how everybody is, but across the globe, there are a lot of business owners that are bad with finances. That’s something that happens in every industry.
I got started with small funding that required me to reach out to friends, family and ask them for whatever money I could at the time. I was able to acquire a $15,000 loan from my girlfriend at the time. I was also able to get another $20,000 loan from a friend. With that, I was sitting on $35,000 and I knew that wasn’t enough money. I did a lot of hope and praying. Sometimes that’s all you have is, “I’ve got to make this work.” Sometimes the numbers don’t work out, but when you are in a position where you don’t have much to lose, it’s a little bit easier to take those risks.
I was able to take the finances that I received from friends and family and put a deposit on the warehouse. I also had $50,000 worth of equipment from lighting, fans, tray, pots, irrigation stuff, nutrients. I had all the start stuff for the warehouse, but I didn’t know how it was going to end up. The very first couple of months, I ended up creating a partnership with an individual. This allowed me to double the output of the equipment that I had when I first rented the property. That was pretty big. When I went into it, I had no idea. I knew I had to do something, but I didn’t have a clue. I wouldn’t recommend it for one. Shooting from the hip I’ve learned is usually more costly than what it’s worth. I was very fortunate in that aspect. You’re coming from the ground and you’re working up. These are some of the obstacles that you’ve got to deal with.When you're relying on a product to pay your bills, it's very hard not to count your chickens before they're hatched. Click To Tweet
The General Entrepreneur
Type two entrepreneur is the general entrepreneur. Somebody that’s either seen some success or been successful in other industries. These are business owners that have ran regular businesses. They’ve seen the hot idea of cannabis. They’re going to get rich or make their fortune in cannabis that they’ve seen some other successes. This can be a big mistake a lot of the times. I’ve even experienced it on a couple of occasions. To be successful in one business and go to him next and expect it to do the same is ignorant.
Because you have been successful doesn’t mean you’re going to automatically be successful and you can do the same thing. There are so many different variables to get this right. I don’t find this just in cannabis. This isn’t a majority of businesses. I wouldn’t be specific and say, “This is only the cannabis.” This is everywhere. You’ve got to be real with yourself especially the new entrepreneur coming into the industry. You’ve got to understand that, “This is going to be some hard work. It’s not going to be easy.” If you’re any good at building businesses, you should have some pretty good systems in place that you can follow.
That’s a huge advantage to somebody coming outside of the industry into the industry. Generally, they have their own money. They’re well-funded. That gives you a lot of breathing room. If you were to refer back to type one, the underground entrepreneur, they don’t have the flexibility as the established entrepreneur. They do have the knowledge. There’s a give and take there. One seems to think they know better than the other a lot of times, which may or may not be true. It definitely takes a little bit of both. You need one and the other or you need to have a partnership that creates something like that.
The type two entrepreneur doesn’t have the experience. Not to say he can’t get it, but unless he’s a farmer, he probably doesn’t have to grow experience. That handcuffs you a little bit. It’s not impossible though. I’ve met a lot of different growers out there that feel just because they know the plant. It’s hard to understand that somebody else can do this that’s not a gardener. I feel for my growers out there, because I’ve said it many times, I’m a grower at heart, but it’s not the ultimate way to be successful.
You’d have to run a solid business too because, with so many pressures of taxes and regulation, you can’t say, “It will be okay,” and turn a blind eye to the bad situations that are coming up. I’ve dealt with many of them. I’ve also tried to ignore some of them too. They don’t go away like a bad debt. It doesn’t go away. It sits there and gets worse. There were some guys that got into the Colorado market that had retail experience, but very few are burst in customer service. A lot of us had to learn this as we open up stores.
I was fortunate enough that I didn’t have to work in the store all the time. I had some retail background from my years of doing inside sales for different companies. I worked at Home Depot and Sears. I also got some restaurant management experience too, but to know how to run a good crew, I would say a lot of the owners out there weren’t that familiar with running a retail operation. There are so many different things you learn, especially loss of inventory. Keeping track of inventory that’s coming from your grow to your retail sales location.
There are so many things in between where that product can get lost, stolen or miscounted that you don’t think about, especially with the small and large amounts of different strains that are being sent over from your grow location. You could have two pounds of Product B and 1 to 2 ounces of Product A, depending on your harvest. That product, the small couple of ounces can easily get lost in the mix of things or can easily be picked up by somebody if it’s not checked in properly. These are little steps that even if you were to run a mall retail location, a lot of those systems in place with the corporate programs. Corporate would come in and put together some systems and say, “This is how you do it,” and it would be done. You don’t have the luxury of that because you’re creating it. It’s a creation in the mix. These are some of the retail woes that you have to deal with.
The third type we’ll call 10,000 hours. The third type is to hone their business skills in cannabis. We had something in Colorado as the medical marijuana market started to blossom. It was called vertical integration. Vertical integration is the process from seed to sale. You grew it, transfer it, sell in your retail and so on. It was no middleman. It’s one continuous company from start to finish, which seems great because you have all the control and you do, but the problem is you also have all the failure. When you have to step into two different locations, that’s much more overhead you have to take care of. Essentially, it’s like starting to create two companies. You’ve got a manufacturing company and you have a retail outlet store. They’re both for two different processes. When we started our grow facility, two of us business partners built an interior grow with the help of some employees.
Two other business partners created the retail space. Each one of them had its challenges. The grow facility was very expensive due to the equipment that’s needed in environmental control systems that have to be put in place. Each time you get bigger, those spaces tend to need more money because you have to create a more ideal environment. The retail facility was less of a challenge because we were building a pickup location for customers to come in and purchase a product. They were very few choices in the beginning. We had started off with two different types of cannabis. One of them I had been growing for years. That worked out pretty well. You see the amount of different flowers that you can purchase and different edibles you can buy. Everything is regulated down to the portion where you know when you buy something from a vendor, it’s going to be compliant with the state. If it’s not, you need to know that too.
Back a few years ago, they were still making edibles and wrapping them in saran wrap, like they were homemade. This was how it looked when you showed up a crispy rice treat wrapped around in cellophane. There’s no way you would see that, but that’s how it was for a few years. The grow facility, you would deal with product loss and at the time, you weren’t sure exactly how your cure time was going to be with your yields. It was very up and down for quite some time. A lot of the times, you were trying to come up with your perfect numbers and it was a lot more work than it should be, but we didn’t know. Growing through those parts and understanding some of these little nuances that come along, you can’t tell anybody about that. Unless you walk them through every step you fell through, it’s hard to tell somebody that unless they’ve experienced it.You got to decide where your dollar goes the furthest and how you can be successful. Click To Tweet
Working hand-in-hand with the regulators and dealing with authority, these are things that these people already overcome. They have stepped into bad situations where products have not been counted or there’s been too much product on hand that push you outside of your legal counts. The state would only allow you to have so much dry product at the time. I remember situations where people would show up from the city and starting to do an audit. You’re over showing that you’re 200 pounds over. That happened to people that I knew. They made them destroyed 200 pounds worth of flower. If you couldn’t imagine those times, let’s say $2,000 a pound. Could anybody stand to lose that much money? I’ve lost some pretty big money. Could you imagine losing $400,000? Not only that, if they suspend it and say there are different situations with pesticides where you have to put $200,000 worth or where you have to hold on to a couple of hundred pounds of dried flower that you can’t sell.
Don’t Count Your Chickens Until They’re Hatched
Every day you can’t sell it. It’s degrading in quality so it’s worth less all the way until more than likely you’re going to destroy the whole thing. You have to watch your savings account start off big and dwindle off into nothing. How painful do you think that is? I have been a part of some of those situations and I’m telling you, it makes your stomach turn. It makes your guts hurt and talk about, like in one of my episodes, the Cannabis Angst. These are the things that are going to drive you to that anxiety and that stress levels shoot up. When you’re relying on that product to pay your bills, it’s very hard not to count your chickens before they’re hatched. That’s happened multiple times. I’ve learned I never count my chickens until they’re hatched. It’s too crazy and too stressful. I know people believe in hope and I do for certain situations, not in business.
You’ve got to make sure you understand the worst-case scenarios all the time. If you land ahead of that, you’re doing awesome. Finally, the time to get out. Experiencing when it makes sense for you to sell your business. I heard somebody comment and said, “It’s a lot harder to sell your business than it is to build it.” I’ve been through those experiences. To show somebody what you’re making and lay all the numbers, show those profitable and decide on what the multiple is. You know whether it’s 2, 5 or 10 times earnings. It’s all over the place. Anyone that tells you that there’s an exact formula to figuring out how much a cannabis business is worth, that’s full of shit. It depends on who your buyer is and what they’re looking for. There is not a silver bullet for this. This takes months and months of work, hundreds of hours of attorneys. The whole time you are investing your time and energy into something that could fall apart before it even closes.
The anxiety and stress that’s built up through this situation are greater than what most people have been through. I believe that happens in every industry, not cannabis. I’m more familiar with it on the cannabis side. Those three types I explained there, that is a majority of what you’re either going to encounter or you’re going to become in cannabis. Which one do you want to be? Where do you want to go? The opportunities out there for you to be type three, let’s go back because this is not a quick game, minimum 5 to 7 years. I would say ten at least. If you’re in a younger market, you could probably get there sooner. If you’re starting either in medical market or recreational market, you’ll be able to take this and you will be able to do some pretty good stuff as long as you stick with it like anything else, if you stick with it.
Where Your Dollar Goes The Furthest
That’s what I wanted to talk to you about. When you’re out there and you’re looking at the industry, seeing who you want to work with and what type of people are out there. These are the types you’re going to encounter. There is no perfect person to work with. I know from my experience, if you’re able to capture somebody that has been around and gone through it, it’s generally who I try to follow. It’s hard too because you will have friends and you’re like, “I’d like to work with them, but you’re not good with their money.” They’re good guys but they don’t have the skills. This is a business. You’ve got to be a businessman about it. You’ve got to decide, “Where does my dollar go the furthest and how can I be successful?”
I’ve got some great news. I have created a calling line. I set this up because some people can’t text anything in or they’re busy and they’re like, “I could make a phone call in my car while I’m driving.” I’m going to give you guys this number. If you’re outside of the US, type in +1 (720) 551-8530. What I’d like to do is open this up for you to leave me show topic ideas or you have a question. I’d like to share with the audience your question and answer it for you. I’m going to create some episodes like this and you’re welcome to leave your comments there. I’m excited about using something like this. Please feel free to call me. You can contact me at PlantProblem.com. You can go through there and contact me. You can also call me at that number and leave me a message. I haven’t seen too many people answering questions on some of the shows that I’ve been listening to. I look forward to you taking advantage of this.
Please take me up on that and use it. I want to give you the best information I can. The only way I can do that as if you tell me what you’re looking for. Let me know what you’re looking for. You don’t have to share your name, just ask the question. If you want to share your name, go ahead. No other information is going to get out. This is solely for me. That number again is (720) 551-8530. I want to thank you for reading. You guys are the reason I do this show. I want to make it better for you in any way I can. Whatever you want to share with me, please call me or reach out to me at PlantProblem.com.
- Cannabis Angst – previous episode