Here we are, more than three years after a majority of Mainers approved the legalization and creation of a market for recreational cannabis in the Pine Tree State. After much anticipation, the first sales are finally due to start by mid 2020. The Office of Marijuana Policy has worked incredibly hard since its inception in early 2019 to lead this effort and develop the regulatory framework to govern the promising adult-use market. Meanwhile, existing and aspiring operators are moving swiftly, exploring their options, securing financing and starting to apply for licenses across the State.
As evidenced by Eliot-based Sweet Dirt starting construction on their 32,000 square foot facility, the days of cannabis as a home-based lifestyle business are over in Maine. What the future holds may not be fully clear, but one thing is for sure: Maine cannabis businesses are going to evolve and strive to implement industry best practices in order to stay ahead of competition and in compliance with State regulations. Compliance will be an ongoing effort for all operators. Stringent regulations surrounding testing and tracking will lead to a different market with high quality, responsible cannabis products, lower consumer prices and new dispensing practices.
At Nucleus One Consulting, we expect the Maine market to total $300 million by 2025, a significant increase from the $60m legal market in 2019. This expanding market will be split between cultivation, extraction, product manufacturing (e.g. edibles) and retail operators. Each of these activities will experience different market dynamics dictated by supply and demand, resulting in varying levels of profitability. Determining which business segments to get into and which to avoid will continue to be a matter of market foresight and potential return on investment.
You may have already begun the process of applying for a state license, or considered submitting one. You are not alone: more than 100 Maine businesses have already submitted applications. With the existing medical market we quickly realize that fierce competition and possible saturation loom ahead.
Careful financial and operational planning is therefore of paramount importance to properly assess the opportunity at hand and how to best capture it. Strong arguments can be made in support of the claim that a vertically integrated model which includes cultivation, extraction, and retail operations is optimal. However, careful due diligence must be done in evaluation of this approach. It requires greater financing, compliance, and day-to-day management responsibilities than other simpler operating models. More conservatively, focusing on one or two of these activities and relying on trusted partners for the other activities may be a more feasible option.
Whether you are already a medical caregiver looking to transition to adult-use or a newcomer to the industry, preparing for the state application process can be daunting. If you are seriously considering it, we recommend mapping the different areas that need to be covered in the application and assessing them against your own skills and resources: detailed financial plan and business model, retail experience, cultivation or processing experience, business management, financial planning, compliance and security, marketing and sales. We encourage you to be as objective as you can in this exercise to mitigate your risks. Identifying gaps early on will also help in hiring the right people with the necessary skills and experience before others do.
Let’s not forget that after obtaining a provisional license from the State, you will need to go through local approval and will only be able to set up shop if the city or town have ‘opted in’ to adult-use cannabis. So far, as of January 2020, only 29 Maine localities have allowed some form of recreational cannabis businesses, of which only 21 have allowed retail businesses. Portland is still drafting its rules, expecting to have its licensing process start in April 2020. This local approval compounds the challenges for all aspiring applicants.
This is especially relevant for retail applicants because location means everything. Finding the right real estate with sufficient foot traffic and parking spaces, and room for your desired layout is already no small feat; but applicants should also anticipate additional delays before being able to open doors. These delays can benefit applicants who need more time to plan and formalize the way they do business and create thorough operating procedures for their teams to follow. Building a brand and developing a unique marketing strategy are another key priority for aspiring retailers to become valuable to Maine consumers and steer clear of the unavoidable commoditization of cannabis.
Starting a cannabis business entails a series of challenges in a host of areas, from compliance to horticulture, to sales and customer service. Before taking the big leap, make sure to have a bullet-proof business plan that clearly lays out your objectives, your underlying strategy and the resources you will leverage to get there. Adequate financial planning and cash flow management will be essential for Maine entrepreneurs to ensure they have sufficient funds, and can fend off competitors, while maintaining healthy returns.
Based in Portland, the Nucleus One team has helped numerous small and large cannabis businesses in Maine and across the United States navigate the complex cannabis market and state regulatory frameworks over the past 5 years. Our experience has consistently underscored the importance of the following key factors contributing to success in the cannabis industry and we expect the same to apply in Maine: strong business models and financial projections, heavy focus on compliance, a competitive marketing strategy, and most importantly, an experienced and capable team, working with industry partners to make your project a success.
It is difficult to have all the skills required to start, grow and improve cannabis operations or you may simply lack the bandwidth to navigate the application process and subsequent steps given the significant up-front work and cost requirements. One thing is for certain: building the right team or seeking help from experienced professionals will make the difference between a thriving and efficient company and an underperforming business in a new and complex market.
Principal at Nucleus One