Problem & Solution
Problem Worth Solving
Starting a cannabis store is all the rage. However, there is a lot of expectations and stereotypes that come with walking into a shop. People think they are going to see lava lamps and psychedelic music and staff that is stoned behind the counter.
Also people are uncomfortable with giving their driver’s license and address before entering the shop. It is necessary by law but some potential customers are worried that means they will be on some government "bad" list.
In short, customers want the products but can get shy about purchasing the goods.
We are well supplied with products, we have all the best products at all the best prices. Further, our store is welcoming and puts the customer at their easy. The lounge is set up like a comfortable doctor’s office and the experience of giving their information is like giving over health insurance info. We show the new customers around to get them comfortable with the store. The returning customers are left to shop at their leisure and ask questions if they want.
Market Size & Segments
Oregon cannabis consumers were quick to adopt concentrate products. While Colorado saw concentrate sales at 19%, a share gained over months of growth, Oregon adult-use concentrate sales were 17% right out of the gate after Early Start in June 2016. Why? A more sophisticated consumer? Repeat exposure to products rec customers couldn’t buy? Medical program drop out? The catalyst remains unclear, but in Q3 and Q4 of last year, concentrates comprised 19% of total sales, on par with Colorado!
What kinds products performed the best last year?
Last year Oregonians bought a total of $67 million in cannabis concentrate products. Of that $67 million, almost $38 million of it was in the adult-use channel. (A feat considering consumers could only buy products for half of the year.) By far the biggest sub-category was vape, which made up almost 50% of total concentrates sales. Out of $30 million in vape sales, almost $20 million came from adult-use.
While edibles are still a small portion of Oregon adult-use sales (only 8%), there was still some interesting growth in this category last year. Across the state, dispensaries sold over $27 million in edibles last year ($13.5 million of that coming from adult-use). In the chocolates category we saw a strong performance from chocolate bars and in candy a strong showing for taffy and gummies. Why are these items so popular? We shall see, but one idea could be that these products better allow the consumer to control dosage. Expect “dosable” or “microdose” products to be big in the coming year.
Pre-rolled joints grew aggressively all throughout last year. During the summer months, even when adult-use customers could have finally chosen concentrates or edibles, they continued to increase their spend on pre-rolled joints. Further, roughly 85% of all pre-rolled joint purchases were made by adult-use customers in 2016.
In a huge upset ;), Gorilla Glue #4 overtook Blue Dream in total sales last year in the adult-use channel. While Blue Dream remained the most popular in volume (606,092 grams sold for Blue Dream versus 541,773 grams for Gorilla Glue #4), Gorilla Glue #4 overtook Blue Dream when it came to revenue ($5,600,999 for Gorilla Glue #4 and $5,302,050 for Blue Dream.) The flower market remains very saturated, with only 15% of total flower sales coming from the top ten strains last year.
There will be massive growth in the foreseeable future. U.S. Cannabis Retail Sales Estimates: 2013-2020 We estimate that retail sales of medical marijuana (MMJ) and recreational cannabis will hit between $3.5 billion and $4.3 billion in 2016, which amounts to year-over-year growth of 17% to 26%. Some factors that will fuel growth this year:
Recreational cannabis: Sales of recreational (or “adult-use”) marijuana soared in Colorado and Washington State last year, and the trend is expected to continue in 2016. Oregon also will contribute heavily to an uptick in sales, as the state’s recreational marijuana industry is growing rapidly after its launch late in 2015. Recreational sales are still in their infancy, and at this point the sky is the limit.
New markets: Several states that started medical cannabis sales recently – most notably Illinois, Nevada, New York and Minnesota – will see sizable revenue spikes in 2016. A handful of new markets, including Hawaii and Maryland, also might come online late this year, helping boost industry retail revenues.
Expansion of mature markets: Many states that established medical cannabis programs years ago are going through a growth spurt, including Arizona, Connecticut and New Mexico. And despite chaos and uncertainty in California’s medical marijuana industry, sales could continue to grow in the nation’s single largest MMJ market.
Total annual retail sales of medical and recreational cannabis could reach $11 billion in 2020, posting double-digit growth each year along the way. Sales of recreational cannabis could surpass those of medical marijuana as early as 2018, though MMJ revenues will continue to make up a big piece of the pie. Note that our goal is to provide conservative, realistic financial forecasts that reflect the huge degree of uncertainty in the industry.
U.S. Cannabis Industry Total Economic Impact: 2013-2020 Beyond cannabis sales at retail and the associated taxes that are collected, the industry’s total economic impact is substantial. Using the concept of an economic multiplier that quantifies the “ripple effect” of an initial dollar spent at retail, we estimate the total impact of the industry on the U.S. economy based on caannabis retail sales to be between $14 billion and $17.2 billion this year, and up to $44 billion by the end of 2020. Overall, for each dollar spent/earned by cannabis companies, an additional three dollars in economic benefit will be realized. For example, a cannabis dispensary/store makes a sale for $100. The business then uses a portion of that money to pay an employee, who in turn uses a portion of that money to buy groceries at the local grocer, and so on – a process that creates a ripple of economic value, most of which remains in local communities. Another example: An infused products maker pays $1,000 to a wholesale grow company, which then uses that money to buy supplies from a vendor, which then uses a portion of that money to pay employees, who then go out and spend their money in the community, etc. This multiplier can be applied to any dollar amount of spend or revenue along the supply chain, and can also be used to demonstrate the economic contraction associated with a reduction in revenue or other expense or tax cut.
Cannabis Annual Sales Vs Other U.S. Industries & Goods So how does the U.S. cannabis industry compare to other industries in terms of sales? Last year, sales of medical and recreational cannabis (the latter of which was only legal for all of 2015 in two states) surpassed those of beloved Girl Scout Cookies, as well as domestic sales of e-cigarettes. The total estimated annual demand for recreational cannabis alone in the United States is about $40-$45 billion, exceeding that of craft beer, wine and organic food. Currently, most of this value is realized on the black market and isn’t taxed, hinting at the tremendous potential for this part of the industry in the future.
Estimated Number Of Cannabis Businesses In The U.S.: 2016 In another measure of the cannabis industry’s tremendous economic contribution, the number of companies in the industry is now in the tens of thousands, proving marijuana’s very real impact on the American economy. For sector-specific details on employment, look in Chapter 1. The figures in that section not only help cannabis entrepreneurs and interested observers quantify this aspect of the industry’s impact, but they also provide critical benchmarks and targets for new and growing businesses.
Our customers have many alternatives to choose from.
There are 28 recreational marijuana shops, five medical marijuana dispensaries, and two shops selling recreational and medical marijuana.
Out of the 31 businesses nearly half, or 15 of them, are closer than 1,000 feet to another pot shop, he found. “All of the businesses in close proximity are in the downtown area or near 6th and 7th Avenues". The new shops must set up in the retail areas that are zoned for marijuana.
Business owners have encountered significant obstacles in a trade that is expected to grow at a compound annual rate of 30% between 2016 and 2020. All the dispensaries, new or established face the same four issues:
Marijuana is illegal at the federal level. States’ rights have enabled voters to legalize the use of cannabis for personal consumption. However, the possibility of prosecution exists for industry participants who run afoul of the tight regulatory environments adopted by each state. Classified as a Schedule l drug, cannabis is federally viewed as a dangerous drug that has no accepted medical use and presents the greatest risk for physical and/or psychological dependence. The U.S. Department of Justice under President Obama has relaxed its stance on cannabis enforcement. However, any hint of operational impropriety subjects business owners to federal scrutiny and laws that supersede state laws.
The marijuana industry is heavily taxed. Recreational dispensaries that offer the sale of the plant’s coveted flowers, or buds, face tax rates up to 70%. Furthermore, the Internal Revenue Service (IRS) disallows any deductions for businesses that deal with the distribution of illicit substances.
Big banks will not extend services to marijuana purveyors. The refusal of financial institutions to accept marijuana-related deposits stems primarily from the drug’s illegal federal status. Additionally, banks are wary of peripheral activity associated with the sale of cannabis. Concerns revolve around potential sales to children, increased incidences of impaired driving and the funding of criminal enterprises.
Sky-high tax rates on the sale of cannabis open up significant opportunities for illegal sellers. A $30 eighth-ounce of marijuana in Colorado is subject to a tax of 8.59%, or a 29% effective rate. In Colorado, 59% of marijuana users turn to state-regulated dispensaries to purchase product. The remaining cannabis users resort to underground acquisitions of the drug, an ounce of which legally can be given to another adult.
What occurs beyond a state’s borders sparks other concerns. As much as 80% of marijuana legally grown in Oregon is processed and illegally shipped to other states, where black market sales evade taxation on both sides of the transaction.
Cash, Crime and Security
Due to the lack of a banking relationship, all transactions involving the growth, processing and sale of cannabis are consummated in cash. Proprietors must pay employees, vendors and the state revenue departments without the means of electronic transfers from checking or credit card accounts. The accumulation of massive cash stockpiles presents safety risks to owners tasked to store and transport stacks of legal tender. Security measures such as armed guards and cameras have been beefed up at the retail level, and at tax offices where payments must be made in person.
Although more criminal activity cannot be directly correlated to the legalization of cannabis, industry growth hinges largely on the repeal of federal marijuana laws and the tolerance level of a new presidential administration.
We will distinguish ourselves from the competition.
1- The look. We will take the care to update the cold warehouse look into a inviting lounge. The receptionist will get the customer’s information and license. They will offer water and there will be non cannabis snacks, candy and fruit.
2- Federal Illegality and Black market. This risk is minimal since we will follow all the state laws. States will protect the dispensary owners who follow all the laws and have the proper licenses. Our dispensary will be small. A large operation is a disadvantage because they are more likely to get Federal attention. Government officials could prosecute to further their own personal agenda.
Following this principle means we will not be participating in the black market. We will make sure all our partners and inventory have the proper legal documentation. We are only at the mercy of the government while doing things that break state laws.
3 – Taxation – we will pay our taxes correctly and on time. We will cut our costs by keeping our staff small but extremely knowledgeable and using contacts to keep our customers favorite products always in stock.
4 – Banking issues. There is a community credit union that will give us a bank account that will allow us to charge credit cards. We won’t have to get a safe or be worried about depositing cash. All sales will go directly to our bank account.
5 – Crime and Security – We will have a security guard as well as security cameras and other precautions to make sure that no one takes off with our inventory. We will be less of a target then the shops around because we won’t have any cash to steal.
Keys to Success
Keys to Success
Our keys to success are:
- name and brand recognition
- reliable inventory. We always have the products our customers want
- knowledgeable staff
- customer word of mouth