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Cannabis Offers Many Types Of Businesses For Entrepreneurs

Customers line up on the first day of retail recreational marijuana sales at the Cultivate Holdings dispensary in Leicester, Massachusetts, U.S., on Tuesday, Nov. 20, 2018. Cultivate and New England Treatment Access, in Northampton received final regulatory approval Friday from the state Cannabis Control Commission to open this week. They will be the first commercial marijuana stores to operate in the eastern U.S. Photographer: Scott Eisen/Bloomberg© 2018 Bloomberg Finance LP

To understand different types of cannabis businesses, a good place to start is by looking at Terra Tech Corp., a company that cultivates and sells cannabis. As a vertically-integrated company, they are able to manufacture and sell a variety of their own cannabis products, including flower, concentrates, edibles, and topicals, under their own IVXX brand.

Even though IVXX sells its products at wholesale to hundreds of dispensaries, Terra Tech also operates multiple dispensary locations (operating under the retail brand Blum) across California and Nevada.

As a publicly-traded company with operations in several links of the cannabis business chain, Terra Tech. has had to scale their growth smartly and keep their big picture goal in mind with every decision that they make.

Terra Tech represents one extreme of the cannabis business spectrum, but with the industry still in a nascent phase, there are many other types of businesses available to cannabis entrepreneurs.

Before a cannabis company – whether it’s a retailer, cultivator, processor, or some combination of the three – gets off the ground, the company first needs to choose its business model and clarify the company’s goals. When considering retailers or dispensaries, there are four main types of business models that you might undertake.

Boutique Stores

While Terra Tech had big ambitions from the start, other companies are started at a much smaller scale by entrepreneurial cannabis connoisseurs who are passionate about the plant and the industry. With state-level legalization spreading, they see an opportunity to serve their community while generating enough cash flow to make cannabis their full-time job.

Like any business built on an owner’s personal passions, these boutique stores focus on the customer experience and concentrate on the quality of the sales experience over the quantity of shoppers and sales. The point of a boutique is to purposefully slow down business while boosting customer experience, order size, and profit margins.

In a boutique store, your budtender may let you examine flower under a magnifying glass to get a good look at the trichomes, or may let you smell the product, or may spend time with you going through a product’s terpenes and their various effects. They’ll often choose and weigh your purchase in front of you.

These businesses are also set up to encourage customers to spend extended amounts of time in the store, which translates into less volume as more time and energy is spent on each customer, so revenue is dependent on selling more per person.

Transactional Stores

In contrast to the boutique store, transactional stores drive towards volume and speed. Think Wal-Mart, for example. The goal is to get the store packed, keep the store packed, and move through customers quickly so the number of transactions rises.

Where boutique stores are all about the experience and the personalized customer service, transactional stores are about convenience, speed, and efficiency.

In a transactional store, products are all pre-packaged and ready to be pulled off the shelf, because an owner’s priority is to increase the number of transactions. One other contrast to boutique stores is that transactional stores also often have more opportunities to grow. Because the main driver is volume, these stores generate more revenue and tend to operate in areas with higher populations.

Multi-Store Operations

Multi-store operations are revenue-driven models of expansion. Typically, an owner builds a successful boutique or transactional store, then uses that store as a blueprint to replicate it in new locations.

With a single store, your revenue is limited by how many people can fit inside. With multiple stores, however, there is an opportunity to make more money. Owners invest in the business to grow top-line revenue so they can drive a generating cash flow and then keep buying new stores.

Franchising

Finally, there is the franchise model. Like franchises in other industries, this model is marked by an owner providing their successful formula to a third party, who then uses it to open their own store.

Franchisees pay the owners for their operating procedures and business formula, and to provide product. They also pay owners to advertise on their behalf. They, then, handle the day-to-day business.

At present, the regulations around the cannabis industry make franchise dispensaries difficult to come by. As policies and state licensing change, though, franchises will be inevitable.

Whether you’re looking to start a boutique or a vertically-integrated multi-store operation like Terra Tech, your success in cannabis retail requires you to imagine your future before you open your first store. What model do you want to achieve, and how do you plan to get there? With that decision out of the way, you can move on to the harder task of sorting through your local laws and regulations – and starting the process of getting a license to grow, process, or distribute in your state.

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So you want to open a cannabis business. That’s great – now is a perfect time to test the waters, with public opinion at your back and the Green Rush on the horizon.

But this isn’t like opening up a coffee shop or corner store. There are a number of elements that you’ll need to consider that are unique to the cannabis industry – everything from compliance in a heavily-regulated marketplace to security concerns to how to handle a transaction when a customer looks to make a purchase.

Customers line up on the first day of retail recreational marijuana sales at the Cultivate Holdings dispensary in Leicester, Massachusetts, U.S., on Tuesday, Nov. 20, 2018. Cultivate and New England Treatment Access, in Northampton received final regulatory approval Friday from the state Cannabis Control Commission to open this week. They will be the first commercial marijuana stores to operate in the eastern U.S. Photographer: Scott Eisen/Bloomberg© 2018 Bloomberg Finance LP

To understand different types of cannabis businesses, a good place to start is by looking at Terra Tech Corp., a company that cultivates and sells cannabis. As a vertically-integrated company, they are able to manufacture and sell a variety of their own cannabis products, including flower, concentrates, edibles, and topicals, under their own IVXX brand.

Even though IVXX sells its products at wholesale to hundreds of dispensaries, Terra Tech also operates multiple dispensary locations (operating under the retail brand Blum) across California and Nevada.

As a publicly-traded company with operations in several links of the cannabis business chain, Terra Tech. has had to scale their growth smartly and keep their big picture goal in mind with every decision that they make.

Terra Tech represents one extreme of the cannabis business spectrum, but with the industry still in a nascent phase, there are many other types of businesses available to cannabis entrepreneurs.

Before a cannabis company – whether it’s a retailer, cultivator, processor, or some combination of the three – gets off the ground, the company first needs to choose its business model and clarify the company’s goals. When considering retailers or dispensaries, there are four main types of business models that you might undertake.

Boutique Stores

While Terra Tech had big ambitions from the start, other companies are started at a much smaller scale by entrepreneurial cannabis connoisseurs who are passionate about the plant and the industry. With state-level legalization spreading, they see an opportunity to serve their community while generating enough cash flow to make cannabis their full-time job.

Like any business built on an owner’s personal passions, these boutique stores focus on the customer experience and concentrate on the quality of the sales experience over the quantity of shoppers and sales. The point of a boutique is to purposefully slow down business while boosting customer experience, order size, and profit margins.

In a boutique store, your budtender may let you examine flower under a magnifying glass to get a good look at the trichomes, or may let you smell the product, or may spend time with you going through a product’s terpenes and their various effects. They’ll often choose and weigh your purchase in front of you.

These businesses are also set up to encourage customers to spend extended amounts of time in the store, which translates into less volume as more time and energy is spent on each customer, so revenue is dependent on selling more per person.

Transactional Stores

In contrast to the boutique store, transactional stores drive towards volume and speed. Think Wal-Mart, for example. The goal is to get the store packed, keep the store packed, and move through customers quickly so the number of transactions rises.

Where boutique stores are all about the experience and the personalized customer service, transactional stores are about convenience, speed, and efficiency.

In a transactional store, products are all pre-packaged and ready to be pulled off the shelf, because an owner’s priority is to increase the number of transactions. One other contrast to boutique stores is that transactional stores also often have more opportunities to grow. Because the main driver is volume, these stores generate more revenue and tend to operate in areas with higher populations.

Multi-Store Operations

Multi-store operations are revenue-driven models of expansion. Typically, an owner builds a successful boutique or transactional store, then uses that store as a blueprint to replicate it in new locations.

With a single store, your revenue is limited by how many people can fit inside. With multiple stores, however, there is an opportunity to make more money. Owners invest in the business to grow top-line revenue so they can drive a generating cash flow and then keep buying new stores.

Franchising

Finally, there is the franchise model. Like franchises in other industries, this model is marked by an owner providing their successful formula to a third party, who then uses it to open their own store.

Franchisees pay the owners for their operating procedures and business formula, and to provide product. They also pay owners to advertise on their behalf. They, then, handle the day-to-day business.

At present, the regulations around the cannabis industry make franchise dispensaries difficult to come by. As policies and state licensing change, though, franchises will be inevitable.

Whether you’re looking to start a boutique or a vertically-integrated multi-store operation like Terra Tech, your success in cannabis retail requires you to imagine your future before you open your first store. What model do you want to achieve, and how do you plan to get there? With that decision out of the way, you can move on to the harder task of sorting through your local laws and regulations – and starting the process of getting a license to grow, process, or distribute in your state.

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