PITFALLS TO AVOID WHEN INVESTING IN CANNABIS & HEMP

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ESTABLISHING FOUNDATIONS OF A HEALTHY CANNABIS INVESTMENT & AVOIDING PITFALLS IN AN EMERGING MARKET

Strength in numbers…. Right? Well those numbers also equal different personality types, different forms of business acumen, different tempers…. See where I’m going with this? You need to know who you are sharing a bed with in business similar to a spouse, and that’s no exaggeration. It can be even more complex in cannabis. And yes, your partner(s) is an investment, of time, of emotions (it’s virtually impossible to keep emotions completely out of business), also an investment of you reputation.

When things are not working out, conflict resolution becomes a priority, however not everyone can “resolve” as well as they think they can, if at all. It’s a skillset that takes practice. In other words, careful due diligence of your soon-to-be business partner(s) needs to be a priority in addition to a very carefully worded operating agreement. In fact, in many cases the operating agreement can serve as a foundation for the beginning of the relationship. How easily you can get through it and add good meticulously worded rules to keep all partners honest may be a bedrock to the future of mutual respect and commitment to one another.

Some other pitfalls are as follows:

  • Lack of Due Diligence with business partners and where their money came from….
    • If needed, (trust your gut on this one) you may want to do an asset verification and ask for “proof of funds” with new partners you’ve never done business with and don’t know personally. In cannabis, ensuring funds are coming domestically and have not been laundered is imperative and more of a problem in this industry than many realize.
  • Poorly structured deal points
    • Play out a few scenarios (if this, then that, if that, then this, etc….), especially when putting together the operating agreement and considering payouts, resolution plans, etc. It gets a little silly playing the “what if”, but it’s important to have very specific deal points in play.
  • Lack of marketing data
    • Whether you’re selling services or products, knowing who is buying what, when and where and the longevity of those sales is just as crucial as forming the business itself. You want to ensure your business will survive as well as thrive, right? This sounds like common sense… it’s not. Many are so excited to kick things off, that they don’t consider different scenarios or lack the knowledge of the market they are penetrating. Do a LOT of research and homework.
  • “Just because you build it, does NOT mean they will come…”
    • Before you build your field of dreams, remember that it is a statistical fact that many businesses kick-off where they know there is a market, and they can supply a demand, but that doesn’t mean that the principal demand will come from your business. There is typically always someone else (often many) other sellers pushing almost identical products and services and they have a better grasp on the market than you do. Oftentimes because they were first to market. Having a solid diversification plan will be key not just market penetration but finding your blue ocean and feasting long term on that market, rather than fighting for your buyers in the predatorial red oceans.