Overcoming Start-Up Challenges in the Cannabis Industry

Thanks in part to a deadly pandemic and a global economic meltdown, 2020 may stand out as one of the most difficult years in living memory in which to launch a business, particularly with very little capital.

I speak from experience. Ciencia Labs introduced our sleep-focused brand dreamt and its first SKU to the California market in December 2019—amid the vape crisis and a few months before the novel coronavirus tore through the country. Everything was turned on its head, and the twin crises threw a massive wrench into our aggressive, in-person sales strategy. Needless to say, the business could have died shortly after it began.

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Despite the challenges, I can call our debut year a huge success. dreamt is sold in more than 130 stores and delivery services across California, including Eaze. The brand has been featured in Rolling Stone, Playboy, Business Insider, and Vice (which called dreamt “one of the year’s most helpful innovations”), and Ciencia Labs was profitable within nine months of our first sale. We’re on the verge of releasing our fourth SKU and our second brand.

We’ve achieved all this with very little startup capital. After raising a modest seed from friends and family, we developed a hyper-lean growth strategy and went to work, negotiating with suppliers, leveraging connections, and pounding every inch of pavement in the state to hustle our way into a space we kept hearing was walled-off to small or bootstrapped startups.

Personally, I think it’s incredibly important the cannabis industry remains accessible for smaller startups, particularly those owned and operated by minorities. So, I want to share the three most important lessons that helped us not only survive but thrive in our first year in the hope other prospective entrepreneurs see hustle and smarts are more reliable indicators of future success than raising millions of dollars.

Cannabis isn’t software

I’m sure none of us will forget the rollercoaster that was cannabis 1.0. We all saw the cash grab, the wild spending, and the hopeless giants with no chance at profitability. There are lessons there to use in the strategy and tactics of our business, and I reflect on them almost daily.

To me, the clearest lesson is this: Cannabis isn’t tech, and brands aren’t software. The approaches that work in that industry are disastrous in ours. A consumer-packaged-goods company does not work with the same economics as Uber. The theory in Silicon Valley is Uber can lose twice its revenue every year because once it hits a massive scale it will become profitable. But as a company making a physical product, we simply will never have the same economy of scale.

For software companies, profit grows exponentially beyond a cost of goods sold (COGS) threshold because most development costs are a one-time expense. Losing money up-front is a winning strategy for them, but irrelevant for us. In our industry, losing money is not a pathway to profitability.

Making and selling physical goods for retailers, we must focus on getting costs down and continuously lowering them; we can’t afford to sell at a loss, at least not for an extended period. Don’t start out with a plan to lose money in the beginning, hoping to make up losses with huge sales down the road. In a consumer-packaged-goods industry, the sooner your company is profitable, the better.

Listen to the people who pay you

I wasn’t always a chief executive officer. I spent a long time working for other people, and obviously I had bosses. Anyone who works for someone else knows it’s important to keep the boss happy. Otherwise, he or she won’t keep paying you.

As a business, the same principle applies. Retailers buy our products and pay us good money they could just as easily give to another company. They are our bosses, and we must keep them happy. Stay in touch with your customers and deliver using their delivery protocols and windows. Replace defective merchandise. Keep packaging and products fully compliant, and work with your customers to ensure they can sell anything they buy. In reality, the customer may not always be right, but do your best to make them feel like they won.

Treat consumers the same way. In a sea of cannabis products and brands, they don’t have to buy yours. So, when an opportunity presents itself, make sure they feel valued. Answer every email within a few hours; address every question or concern. Care about their thoughts, and show you care. Be transparent, be honest, and be kind.

A bigger founding team beats expensive hires

You might read the first two points and think, “Sure, I’d love to be out in the stores more, but I’m the founder and I’ve got fires to put out in every single area of the business every single day.”

Early on, we made an important decision: Rather than seek out institutional capital and hire talent, we would start with a bigger founding team. Of course, this carves up speculatively precious equity into smaller pieces, but for us it means we have five A-plus hustlers out in the field giving 110 percent at all times with their eyes on the big prize, all for what probably nets out to far less than minimum wage.

Our year-one wage bill for our five founders was $90,000, total—a figure that could have been upwards of $1 million if we had hired an executive team. As the cannabis industry is quickly reprioritizing profit over topline revenue, a bigger founding team prepared to forego typically high salaries is a simple way to dramatically reduce overhead.

Our industry is still paying top dollar to bring in talent from outside industries, and operating conditions often turn out to be too turbulent and inconsistent to retain them. While this last piece of advice may come a bit late for those already on the journey, I can safely say it has been the most important difference-maker for us.


Wassef-Tawachi-Ciencia-Labs-dreamt-mg-magazine-mgretailer

Wassef Tawachi is co-founder and chief executive officer at Ciencia Labs and dreamt, manufacturer of an eponymous, award-winning cannabis sleep aid. He oversees all corporate development, finance, and scaling the company’s growth nationwide. Tawachi has consulted with some of the largest cannabis brands in California and spent almost ten years in ultra-net-worth investment management with First Republic Bank.

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