Professionalizing and Formalizing Your Cannabis Farming Operation

As someone who has engaged dozens of commercial cannabis farmers through my financial consulting platform and my own work as a farmer, it’s become clear that many smaller operations could benefit from professionalizing and formalizing their operations.

For decades farming cannabis profitably and illicitly in the more permissive states was relatively easy.  Because of this, operators never had to bother with many of the business planning functions so common to other industries.  Things like business plans, mission and vision statements, target markets and product offerings weren’t really on the minds of folks operating in the space.  Rather than trouble with such unnecessary things one could buy rural land on the cheap, grow tons of crappy weed, sell it for high prices, and earn a marvelous living.  There was work involved and risk of incarceration and theft were real, but it didn’t take a rocket scientist to be successful.

Now that billions of dollars are flooding into the industry, competition is fierce and farmers must become astute businesspeople if they want to survive.  They must formalize and professionalize their operations to find lasting success.  The first step in this process is creating a written business plan to help guide the operation forth with clarity.  The second is creating an operations plan that guides day to day workflow in an effort to control quality, improve outcomes and generate the consistency necessary to build a successful brand and attract capital.

A business plan doesn’t have to be intimidating. It can actually be a real joy to create, especially for those who truly love farming cannabis and competing in the nation’s fastest growing industry.  It’s your chance to be creative and identify how you want to operate and where you want your business to go. 

When creating your business plan you must first describe your company in detail.  Things like your vision, mission, and value proposition are included here.  What problems are you trying to solve?  What market needs are you attempting to meet and why/how can you meet them better than others?  What do you hope to achieve with your business, in other words, what is its meaning and purpose?

Your plan should also include a market analysis.  Many use a SWOT analysis here that outlines your specific strengths and weaknesses as well as opportunities and threats facing you.  In the case of cannabis a market analysis should talk about increasing social normalization and competition, changing consumer needs and preferences, product proliferation, price action, and a developing national and global marketplace among other things.

The business plan should also detail your company’s organizational structure.  What type of entity are you, a corporation, an LLC, other?  How about the structure in terms of employees, management, and outsourcing of critical business functions?

Product focus and marketing/sales are often the bread and butter of the business plan.  Are you competing for shelf space with high end flower, seeking celebrity endorsements, or growing biomass for extractors and other value added participants in the supply chain?  Are you focused on cannabis as a medicinal, lifestyle or recreational product, or something else?  How will you get your product to market?  What distribution platforms will you use and will they provide acceptable sales velocity and revenue?  How does your operation help distributors fulfill the needs of their customers and do you fulfill them better than others?

A natural offshoot from this section of the business plan is financials.  Using reasonable figures for production, prices garnered for product, and a detailed breakdown of costs, how do things pencil out?  At what point during the year will you break even?  How much must you set aside post harvest to fund the following season’s operation?  How profitable is your business?  What changes can be made to improve financial performance?

When complete, you will be proud of the plan created.  It will guide your organization forward and can always be adjusted as needed.  Once commercial lending finds the cannabis space and as mergers and acquisitions pick up steam in the coming years, having a sound plan and a proven track record of success will show your professionalism and help you stand out from the crowd.

An operations plan is also critical to your ongoing success in the increasingly competitive cannabis farming space.  This plan should outline your farming process in exceptional detail.  Everything you do to create product, from start to finish, must be written down.  This not only helps improve consistency and predictability, but also allows you to transfer your knowledge efficiently to workers or potential suitors.  I personally use a weekly calendar that documents all necessary tasks all season long.  I build the calendar each Sunday and actually enjoy the process as it clears my head and allows me to farm more confidently than I otherwise would.  It is enormously beneficial in terms of dictating workflow, improving efficiency, and creating accountability.  Was the work done or not?  If not, why not?  Calendaring helps avoid distraction and helps prevent overlooking important details.   Many farmers are paranoid about documenting their “trade secrets” and workflow, but failing to do so will inhibit your ability to scale or grow your operation.  Transferability of your winning systems will help drive enterprise value and will become increasingly valuable in a growing marketplace dominated by M&A.

 While somewhat time consuming, professionalizing and formalizing your operation is a must.  Failing to do so, I argue, will only hasten your demise and facilitate the transfer of wealth from your pocket to larger corporate interests.

All the best,

Jesse Duncan   

Heavy

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