Are you just starting out in the cannabis business? In this episode, host, Anthony Frischknecht, talks about some of the essential facets of selling cannabis that new business owners need to know. He lays down the importance of understanding the people, the extraction companies, and the manufacturers you trust to grow your cannabis. Hear Tony’s discussion on knowing how to source out your produce, along with his experiences and learnings from growing to selling cannabis.
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Cannabis Business Basics: Finding Your Audience And Manufacturers
We’re going to talk about partnerships, how will they work into your business and how can they help you. First of all, I want everybody to understand that these are essentially professional marriages. I understood that when I started my first real big partnership. I would have thought about it much differently. Now, I’ve had much time to go over the situations. What led me to understand is a lot of the times why I brought in a partner was because there was something that I was lacking. A lot of that was income-wise and funding. If you don’t have any money, you don’t have anybody you can hire to work. Who ends up working? It’s going to be you. Unless you get a partnership where they can help on this end. They’re not getting paid either so we’re all in the same boat. That’s why I did it and so many will because of situations like that.
First Major Partnerships: Dispensary And A Grow
My first major partnership was in a dispensary and a grow. The regulations were changing on us. In Colorado, at the time, had what was called a vertical integration where you had to grow your product, sell 70% of it through your store and you could either wholesale that extra 30% or sell it all through your store, whatever the case may be. In the beginning, in 2010, we could easily sell everything we grew. It was not an issue. I have a silent partner at the time. We had a 5,000 square foot warehouse that we were growing out of, but we did not have a store. If anybody out there has started to grow or looked into starting one, you know how much how capital intensive they are. It’s much cheaper to go into dispensary business. Your licensing will be expensive, but it is on the growth side as well.Just like dating, partnership is learning how you get along with a partner. Click To Tweet
The other side of that is you can’t run out of business expenses as much as you can on the grow. There are a lot of pluses and minuses here. At the end of July 2010, we had to be vertically integrated with a dispensary. What were we going to do? We had sunk all our money into our grow and we were working for free. Where the heck were we going to find money to buy or start a dispensary? Not only that, the zoning was changing rapidly because they were trying to keep us away from schools and parks. If anybody’s dealt with any zoning, you know how quickly those spaces can lock you out of any type of real estate that’s available. If there’s nothing to rent, you look at buying something. If you don’t have any money, you’re not going to get a loan on a dispensary from any bank. You’re out of luck there. We had to find a partner and fast. We had to find somebody that had what we didn’t have, which was a dispensary.
We found a couple and we had started working with them and they were building the store. My silent partner and I had the majority grow knowledge at the time, so we were running the grow. At that time, it seemed to be like, “This is perfect. They have this and we have that. We have our thing and they have their thing.” It was a simple partnership. Such as when you’re dating, you don’t truly know the person until after a few dates. Thank God I’m not dating anymore, but there are so many red flags that you see in the dating world that sometimes you’re blind to. Sometimes you pick a bad relationship. Everybody out there has at least one in their life. If not, congratulations.
We had met these partners in June. They only gave us about 60 days to put something together, signed paperwork and become partners. All that’s happening while we’re making sure our grow is still producing its first crop. I also have my part-time job. We’ve got all these things happening at once and two months’ worth of dating goes quickly. When you’re dating, you’re seeing how you get along with somebody. You’re also spending some social time together. Maybe you’re having dinner with them, you’re doing drinks and you’re also understanding what they can bring to the table. At the time, we didn’t have a whole lot of options. It was more of a handshake and a shotgun marriage.
A lot of those things that you usually have the time for, like seeing red flags and stuff, you tend to glaze over because the bigger picture is, where do I set with this partnership? Are they going to be as good as partners as they’re going to be? I don’t know. At that time, we didn’t know either. What we did know is that we would be out of business in 60 days unless we had a partnership. It’s the lesser of two evils. We’ll have to take this on. Fast forward to the end of July, we signed our papers and everybody’s like, “This partnership’s good.” We’ve got 30 days before we’re going to harvest our plants and we’ll be able to open our store in the next couple of months. We’ll have flowers there.
Issues Within The Partnership
I am going to share some great information for the newbie person that is either working on their cannabis or their hemp product. It’s challenging to figure out what product do I want to create? Some of the other episodes I’ve talked about growing and some extraction, but you can go so many different directions. Which one are you going to take as the new business owner or as you’re creating it? There are a lot of different sources out there. Are you going to be growing the product yourself? That’s of course an option. There’s also white labeling. I’ll get into that a little bit more. White labeling is a pretty good way to create a product without having to spend a huge amount of investment to get started. Are you going to be branding it? How are you going to be branding it? Who are you going to be branding it with? There are more things to think about and who’s your product for? This is a tough one.The key to defining what's going to sell is going in and actually digging into the mind of your buyer or your customer. Click To Tweet
I like to go with the theme of what fits you or what works well for you? Some people are really excited about health and beauty, that fits their personality and fits them. Let’s start off with what you’re going to create a product. How are you going to do that? If you’re sourcing or you’re growing your own product, which is very simple. You can actually take that product, cannabis or hemp and there are lots of companies that do the extraction. There are a lot of people that have invested millions of dollars into the extraction side of the industry.
One thing is you can send your product to them. They can extract cannabis oil or hemp oil, CBD, depending on what you’re growing. Finding these people is not that hard. They’re all over these cannabis conventions. You can find several people. If you find an extraction company that’s selling the equipment, it’s very easy to ask them, “Who are you selling these to?” In let’s say California, “I’m looking for somebody to extract my oil out of my product.” You, the business owner, because you’ve probably invested everything into growing the product, you don’t have to go out and invest in all the extraction equipment. That’s a big plus. You’ve taken one person out of the equation. I know there are a lot of people that are like, “I want to grow and I want to sell it or I want to extract it, grow it and sell it,” all of the above.
You’ve got to figure out what makes sense for the finances that you have. The majority of people out there cannot finance every step of the way. There are some big guys that can but I’m not talking to those people. I’m talking to the entrepreneurs that are starting up a new business. This is all a great way to save some money and basically build your company off of somebody else’s extraction and hard work. It’s going to cost you a little bit of money, but it’s nothing compared to what it’s going to cost you to set up a lab and get it ready. There are so many hurdles to get your lab up and going, besides it being financially, it takes a long time to go through the city and all their regulations so they know that you’re safe. If there are a couple of those, probably at least 4 or 5, maybe ten different extraction companies. You can also shop them a little bit. It’s getting a little more common where you can shop their prices and how much did they charge you to extract.
The next process I want to talk about is white labeling. For people that aren’t familiar yet with white labeling, there is an extreme amount of this happening around the industry. What you have to do is if you’re white labeling, is to find a company out there that will not only have the raw material but will create it and make your product for you where you have an end product and then you put your branding on. This comes more of a marketing side. If you’re not hands-on, this one comes more into the side of, you’re going to build a brand, you’re going to create a sales force, do everything on the retail side or get it ready for retail and have somebody manufacture and create your product for you. It is pretty cool too because this is for anybody that’s been working on how to get financing. This is a great way to build a product and sell it. There are some drawbacks. You’re not able to control all the manufacturing. You’ve got to trust that you picked a good manufacturer and you’re going to have to do your research on who you go with.Do your due diligence when choosing your manufacturing company. Don't go blindly with the first person you see. Click To Tweet
You have to make sure that these people’s quality control is in place. You want to do your due diligence on that. I’ve had several companies that say one thing that’s in the product and look and do the testing on a third party and that’s not the case. You want to do your due diligence. You don’t want to be silly about it and blindly go with the first person you see. White labeling can be very useful because of the low amount of investment that it takes to get this product. I would think anywhere you could get started for probably as little as $5,000. A lot of it would take you doing your own marketing work. If that’s something that fits you and that’s your niche, then I would take advantage of your skill level.
Creating that real product that your consumer would like to use or purchase, you have to get in the mind of who your audience is and who’s going to buy your product. This takes some time. When people do case studies on what’s happening with their market and being a little guy, if you go out into the public and get yourself around some of these places, even like Walgreens. This requires some skill level by you but I’ve actually gone in and I’ve watched people. I have watched them buy it. I’ve listened to them talking about CBD. In fact, I was at Sprouts and I saw a group of six young adults. They were probably in their 30s and I could tell that they were out of town and they were standing next to a big case of CBD.
They had a bunch of CBD products, probably had lotions and tablets. Right next to that, they had a magazine talking about hemp CBD. They’re looking through this magazine and trying to figure out which one they should buy. I looked at it and asked, I’m like, “This is so new.” It blows me away still being stationed in Colorado, the ground zero. Somebody brought up that we’re like the Silicon Valley of cannabis. I thought that was silly but the more I look out into our little ecosystem here, that seems to be the case. Take advantage of that. I thought to myself, “This is a good stage for deciding what product I would make.” I walked up to these guys and I started talking to them. I said, “Are you guys looking for CBD stuff?” They’re like, “Yes, we don’t know anything about it.”
I started asking them a couple of questions. You could tell they were a little bit nervous talking about it, but they were also excited because it’s new, which I thought was refreshing being the newbie and watching them dissect everything. I asked them a couple of questions, “What are you looking for?” “I’ve got some pain stuff here. I like to do this.” I’ve got a limited amount of skills on the CBD front, but going in and actually digging into the mind of your buyer or your customer, that’s key in defining, “What’s going to sell?” I’ve been in companies where we’ve had 7, 8, 10 different products and only two were worth selling out of the whole thing. The other seven were there because we couldn’t let them go.
Fortunately, we had some big products that were selling very well for us. That’s what kept the other ones a flow. If you only have one product, you’ve got to make sure you focus on that and understand that customers and what they’re going to need from you. I’ve seen people spend thousands of dollars on these products and developing them. They sell very little and it takes so much time and effort to put these products together from the creation all the way to get out to where that’s the retail product for your customer. It’s so many steps and this is a step that many people forget to utilize and truly understand their customer base and who they’re trying to sell to. Understanding your customer base is one of the number one things. You want to work backward from where we started, “What do you want to build? What do you want to source? What do you want to create? How do you brand it?” Taking those ideas is good throughout the process, but you have to start from the top and go down and say, “I’ve got a product in mind and let me shop it with my customers and see what they’re going to react to.”
If you’re a little bit uneasy about going up to strangers and talk to them, I totally get it. You can still go out to people that you know, especially family members or friends. You don’t have to tell them to say, “I’m looking at these products and I wonder what you think about CBD product use.” Utilize who’s around you to at least get some information. Create a little five questionnaire that you can take notes with on each person and say, “What are you looking for? What do you like about CBD the most? What do you feel that’s going to help you in your life?” This is one of my chapters in my book. I’m breaking it down for you and this is a great way for the newbie to get started and decide what he’s trying to do and what he’s trying to figure out for a company, for a business of his that he wants to start.
If you’re interested in that book, you can go to tonyfrischknecht.com. There’s a link there that’ll tie you purchasing the book from there and there’s a little information about me. Please do your research on your product before you go and start making something. Your chances for success are much greater. I want to thank you for joining me. I appreciate you guys reading. Hopefully, there was some helpful information here that I provided. Please feel free to contact me on my Facebook page or on Instagram. Let me know what you want to talk about and I’d be sure to dig into and give you some good information. I will talk to you soon.