There’s no doubt that the cannabis business is like no other: taxes, banking, financing, regulations, licenses, referendums. The landscape varies so widely, not just by state but even by town. Competition comes in all forms: the illegal market, hemp-derived products, other operators.
But at the end of the day, when it comes to dollars and cents, it’s still a business.
“A dispensary is a retail business,” says Jake Berry, CEO of LoudLabs, a former budtender who found his way into manufacturing almost a decade ago when he won a Colorado license. “Make sure your inventory is right, schedule employees, deal with turnover, provide customer service – that’s what you’re doing.”
From his budtender days to his serendipitous entry into Colorado manufacturing to his position as CEO of an operation in three states (as well as some experience as a grower along the way), Jake has done the rare thing: he runs a profitable business.
That’s why I sat down with him: I wanted his insights on what it takes to make it in the cannabis industry – without resorting to significant debt or diluting his majority stake in a business he runs with just one partner.
Here’s what he shared about how to build a successful cannabis business.
- Think Locally
A cannabis manufacturer who operates in multiple states has different parameters than, say, a liquor manufacturer: first off, you need different growers in each state – which means creating and sustaining multiple relationships (more of a challenge in a new market like New Jersey) – as well as different sales and marketing teams.
But when it comes to products and pricing, it’s even more challenging, because each market is so drastically different – and fast changing, sometimes on a weekly basis. In a price-compressed market like Michigan, you have to be extra thoughtful about which categories to compete in, to avoid selling at a loss. In a newer market like New Jersey, instead, you have to be careful not to price gouge – and risk losing market share in the long run.
- Lean on Data
Whatever your vertical, in cannabis, data is a must-have. But business owners need to consider it a must-use. Jake gets weekly updates about price compression so he can stay ahead of any downward trends.
“If we’re seeing a decline in prerolls, with prices lowered by a dollar consistently every single month, I’ll assess our pricing strategy sooner rather than later, so that we don’t get stuck where the dispensary stops buying our product because it’s too expensive, because too many people have undercut us. You need to get ahead of it before it changes and you get kicked off the shelf.”
“There’s not a lot of loyalty,” Jake adds, “and it’s market dependent, but if you have good relationships, they’ll have those conversations with you. A lot of times, what they say is, ‘Here’s this new thing. It’s cheaper. I’m buying it.’ Then they stop buying your product. If you can get ahead of that, you can stay on the shelf and continue to gain market share.”
- Go Slowly
When a new market comes online, it’s an open playing field. But, in most cases, the extra cash dries up when the market is saturated and price compression sinks its teeth into margins. “Typically what I’ve seen now in new markets is you can get two good years,” Jake says, “and the prices are going to drop out, especially in these open markets.” But with every new market that comes on line, older markets experience shifts in supply and demand: When New Mexico opened, it drew Texas customers who used to drive all the way to Colorado. With Colorado dispensaries going under, prices are coming back up.
So what should you do if you want to step into a new market? Right now, Jake sees an opportunity for dispensaries on state borders, where the neighboring state still has no rec program – but he offers an important warning: “It depends on what you want to do. Do you want to sell while you can, while it’s high, or do you want to actually make a business out of this? Because those aren’t businesses. Those are cash cows that are going to disappear when legalization happens. So, do you want to expand and have more dispensaries in that market? Or do you want to run a business? Most people don’t. It’s not very fun.”
For Jake – who takes about two years to get up and running in a new market – part of going slowly means not taking on significant debt with high interest rates or diluting his share in the business by taking on partners. “It’s been slower growth. Our approach was different from Medmen. So many of these cannabis businesses that are growing don’t have sound fundamentals,” – managing cash, improving gross margin, optimizing overhead – “They aren’t actually making any money. I still don’t know many cannabis businesses that are profitable. It’s pretty rare to find one. So the whole idea was like, ‘let’s just build a business and scale it that way – slowly.’”
With descheduling on the horizon, Jake isn’t holding his breath for any significant improvement. He believes the biggest transformation will come with legalization and, with it, the acquisition of small businesses like his own. But that’s not stopping him from continuing his steady growth trajectory today. “I’m constantly monitoring. All I do is read. I’m ready every single day. I’m ready about all the new markets, I’m reading about what Brian Kemp in Georgia is doing and what’s coming in the pipeline. Then I start researching populations, market size, what the laws are and how easy it is going to be to get a license.”
Any states he has his eye on, for 2025? “Ohio is going to be the best market in the country next year,” he says, “Hands down.”
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