Cannabis manufacturing faces many unique hurdles and challenges that other, more established industries may not encounter. Chris Finelli, managing partner of Phoenix Distributors, draws parallels between large commercial agriculture, heavy industrial manufacturing, consumer packaged goods and the CBD business. “One common theme about all of these industries, as well as cannabis manufacturing, is they are very capital intensive. However, cannabis is more regulated than these other industries, the marketplace is fractured at each level of the supply chain, and client acquisition is more expensive,” he says.
With these challenges in mind, having a clear path to generating revenue — starting with an efficient CBD business plan — is crucial to success. “I see smaller companies skipping those planning steps for a sound, fundamental business,” Finelli says. “Then they are under increased pressure when they run into issues with revenue generation.”
Emphasizing that the CBD business is not a “gold rush,” where people will clamor to buy the products new companies bring to market, Finelli points out that identifying your market, pricing products correctly and creating operating efficiencies is the path to success. Often, a revenue-as-a-service (RaaS) company can help with these strategies and tactics. But it also takes a strong C-suite to work with outsourced talent to get the most out of the relationship.
Overcoming the Challenges of a New, Highly Regulated Industry
The tight regulations in cannabis manufacturing, coupled with the infancy of the industry, mean that CBD manufacturing companies grapple with challenges that Fortune 500 companies would never consider having to face. The primary issue is cash flow and the perception of inventory as a liability rather than an asset. “Every day cannabis is not sold, there’s a perception that it loses value,” Finelli says. “You’re really under pressure to be able to sell all your products once they are produced.”
He notes that in an ideal world, cannabis manufacturing companies would be able to secure contractual agreements to pre-sell product to retailers before it’s even produced. But the relationships have not yet been established and the trust isn’t there yet in an industry that’s just blossoming. Instead, growers must work to shorten the supply chain and increase efficiencies to manage cash flow.
“If you’re just starting to think about sales and revenue generation as you’re taking down your first harvest or packaging your first product, the exponential increase a sales path will follow is going to take too long and your cash flow is going to suffer,” Finelli says.
Build Trust With Your Clients
One key to shortening the sales process is building trust with your clients. “Underpromise and overdeliver,” Finelli advises. “And also understand what you can deliver on.”
He points out that, as recently as five years ago and potentially even more recently, the CBD business was all black market operations with no regulation and a lot of misrepresentation. Recreational cannabis is still only legal in 16 states and Washington, D.C., while medical marijuana is legal in 36 states. “There are a lot of dishonest business practices that take place in an illegal market,” Finelli says.
Whether a company has transitioned from black market growing and sales into a legitimate business or only just launched since legalization, there is a reputation to overcome. “Even assuming you aren’t taking those bad business practices of the past and letting them migrate into your business, you still have to earn trust,” Finelli says. Your CBD business can attempt to do this on its own, or you can bring in a trusted commodity — an established revenue-as-a-service (Raas) firm — to help.
How Sales-as-a-Service Can Aid With Demand Generation in Your CBD Business
Working with a revenue-as-a-service company can shorten the learning curve for companies seeking the right market for their products, setting prices and building trust.
What an RaaS Company Can Do for You
RaaS companies already have the industry relationships established to get your products into the right hands. An RaaS team that works directly in the CBD business has a sales team, market knowledge and a database of trusted relationships to accelerate the curve to new clients. “Once we vouch for a product and put it in our catalog, our contacts trust us and work with us,” says Finelli.
He continues, “When you try to internalize sales, there’s a risk you’ll make mistakes. If you hire the wrong person, don’t identify the right market segments, have the products priced wrong or don’t understand what the market truly wants, you’re going to be set back even further.”
He adds that most consumers understand what they expect out of their CBD and it’s a matter of delivering products with those features at the right price.
As your CBD business grows, your RaaS firm’s role may also expand. Finelli points out that a RaaS provider can offer marketing services and business strategy consulting. “Many of our clients ask us to help them identify target clients and market segments, find ways to reduce costs, and offer market insight,” Finelli says. “We can also recommend new channels or avenues to expand and grow the business.”
How RaaS Teams Save Money
Even if your internal sales team gets it right most of the time, you’ll find your balance sheets may benefit from an outside sales force or RaaS. Finelli points out that you’ll save money if you don’t have to hire and train a sales team, invest in a customer relationship management (CRM) platform and organically build demand generation and client acquisition tactics and strategies.
“For a startup company that’s cash flow negative, outsourcing will be cheaper,” he says. “Even if you do it successfully in-house, you’re adding W-2 employees to your balance sheet and it’s going to cost you a significant amount of money.”
How To Work Most Effectively With a Sales-as-a-Service Team
Even with a reputable RaaS team by your side, your CRO and CMO must play key roles in growing your CBD business. The most successful leaders understand challenges unique to startups, embrace the industry culture and are willing to step outside of their job description as needed to build systems and structures that will contribute to long-term growth.
Finelli concludes, “Cannabis is not a gold rush. It’s a highly regulated industry with smaller than expected profit margins, so you need every part of the business to be firing on all cylinders.”