This article is the eighth in a series called, “So you want to start a canna biz?” created in partnership with Good Tree Capital. The last article in our series focuses on growing your cannabis business.
So you have acquired a license in Illinois and your cannabis business is up and running. Next up, establish a solid plan for growth.
Growing your cannabis business doesn’t happen overnight, and different business models help a business grow in different ways. The common thread across all business models, however, is the need to steadily increase the revenue you pull in.
Here are six different considerations for cannabis business owners that are ready to grow their weed business in Illinois.
1. Increase your sales goals
Finding the balance between price and quantity is essential, and to find it, you have to know your finances, and customers, to a tee. Outright increasing your prices can increase your bottom line, but it will likely be at the expense of your customers.
To mitigate this, you can increase your sales goals, focusing on attracting new customers.
2. Expand your product or service offerings
Another route you can take to grow your cannabis business is to expand your offerings so that some products can be sold at a premium and others can be sold for a discount.
If you are a manufacturer, grower, or another business higher up in the supply chain, the same logic applies. In all cases, you are selling more products, and growing organically over time as you continue to optimize your operations – as long as you can keep up with the costs of more production!
3. Acquire additional cannabis business licenses
As your business grows, it is likely you will hit an inflection point that signifies a need to expand.
If you are a grower, you may hit the limit on how much flower your business is permitted to grow under your license. Or if you are a dispensary, you get to the point where your business is solid and in essence “running itself” so you can shift your focus and bring your expertise to new markets.
In both cases, all signs point to expansion, which currently means that you will need a new license. Replicating the model across the state by acquiring more licenses allows your business to increase revenue coming in, but also cements your brand as a known and reputable company for the services you provide.
4. Consider vertical integration
Some businesses know they have perfected their craft and seek to multiply, while some businesses see the opportunity in taking operation optimization a step further. A crucial element of optimizing your operations is decreasing costs.
Over time, you can develop relationships and cut deals with other businesses that are part of your supply chain. But prices can only go so low, and these business partners still need to profit from you to keep their business running. This encourages a lot of companies to vertically integrate.
Vertical integration is when a company develops or purchases other companies in its supply chain. Profit margins will always be larger for companies that supply themselves before they supply others, and being in control of your supply chain allows you to have even greater control over your revenue drivers- price and quantity.
5. Become a multi-state operator
Whether going the route of vertical integration or opening more locations across your state, when your business wants to take expansion a step further, you have the option of becoming a multi-state operator (MSO).
MSO’s have licenses across state lines, and although they can’t freely move products from state to state, their strength lies in the intellectual property, equipment, branding, and manpower between the operator’s cannabis companies.
The key to an MSO is operational efficiency, which is driven by strategic growth and expansion. This can take two forms. One avenue is rapid expansion, getting a stake in several states regulated markets, and growing with the market. Another is to target states with fewer licenses and establish yourself as a dominant player in younger markets before it gets too established.
Regardless of which route you choose, it is key to ground your strategy in operational efficiency. MSO’s have a history of racing to gobble up as much of the market as possible, and while this is effective for expansion, it doesn’t guarantee, and oftentimes hurts profitability.
6. Apply for funding that will help you grow
Depending on where and how you will grow, you may need additional funding to get there. As we outlined in our previous article, How to get funding for your cannabis business, you have three options for financing: profit, debt, or equity.
If you can support your growth strategy with profit you have made from operations, then great! However, even the most successful, profit-generating businesses want to ensure they can use their cash flow to sustain their operations, like buying inventory and paying vendors. This is why debt and equity investment options are more than likely the best way to go.
Debt and equity financing can come from investors like trusted friends and family, private equity firms in the cannabis space, cannabis lenders like Good Tree Capital, and even the State of Illinois with the Social Equity Cannabis Loan Program.
Pathways to financing are out there, so it’s all about choosing which one aligns with your business model and growth objectives as your cannabiz continues to thrive!