8 Major Challenges Cannabis Entrepreneurs Face
Entrepreneurs in any industry face a myriad of challenges, such as choosing a mission and vision, brainstorming effective marketing strategies, and finding reliable capital. However, those brave enough to venture into the burgeoning cannabis industry face additional obstacles. Here are eight challenges specific to the cannabis industry.
PAID MEDIA ADS
Even though the cannabis industry is growing at an astonishing rate, federal law prohibits its advertisement on popular social media platforms like Facebook, and bars advertisements on the search engine behemoth Google.
Even though U.S. federal law prohibits advertising of any kind for Schedule I controlled substances, Facebook and Google both have company policies that prohibit cannabis advertising on their platforms. This presents a massive challenge to entrepreneurs because those two companies alone comprise more than 59 percent of the U.S. digital marketing share.
CONFUSING, AND VARYING, STATE LAWS
While cannabis remains a Schedule I substance, and unless and until the federal government legalizes cannabis, laws regarding the industry are patchwork and vary from state to state. This means that in order for a business to operate in more than one state, they must have a comprehensive understanding of how to be legally compliant in each one. This can affect everything from application and licensing fees, security requirements, taxes, how far an establishment must be from a church or school, even what kind of products they can sell. This also affects an entrepreneur’s bottom line.
PAYMENT PROCESSING ISSUES
Banks, by their nature, are risk-averse, especially when it comes to “high risk” industries like cannabis. And, by working with cannabis businesses, the banking institutions themselves are at risk and may be seized by the Federal Deposit Insurance Corporation (FDIC). Should a bank decide to work with businesses in the cannabis space, they may charge extra fees. Without the cooperation of banking institutions, canna-businesses often have to operate as cash-only establishments, which is risky on its own.
However, this uncertain landscape may change. Recently, the U.S House of Representatives passed the SAFE Banking Act in a landslide, a move that would permanently protect banks desiring to offer banking services in legal states. Now, SAFE will move to the U.S. Senate, where historically, lawmakers have been less friendly to cannabis legislation.
LACK OF REGULATIONS
To understand how a lack of regulations is harming the cannabis industry, one need look no further than the recent vape cart crisis, which has so far caused 12 deaths and sickened 805 people in 46 states. The Centers for Disease Control reported that 77 percent of people affected by this crisis said that they used illicit market THC products.
Industry leaders like the National Cannabis Industry Association (NCIA) and the Cannabis Trade Federation have called for more regulations for the unchecked industry, which currently relies on the word of operators that their products are safe.
While the vape cart situation worsens, the FDA (Food and Drug Administration) has been of little help. As it currently stands, they are having difficulty figuring out how to regulate the non-intoxicating cannabis compound, cannabidiol (CBD), which has seen explosive growth and is on its back foot when it comes to the industry’s mostly unregulated expansion, and public sentiment. Uncertainty such as this is difficult in any industry, much less one with only partial legal protections.
Cannabis licensing is tricky. With industry advocates focused on repairing Drug War harms, some states have thrown open the licensing gates to include more diverse communities and applicants, but finding the balance is easier said than done.
Take the state of Oregon, a case study in market saturation. Oregon has a massive oversupply of pot, and as a result, prices for herb in the Beaver State have dropped significantly. Many fear consolidation of the industry could elbow out mom and pop growers and usher in big cannabis, which could homogenize the industry and push consumers onto the black market.
In the meanwhile, the CBD market continues its rapid growth, with companies fighting to differentiate themselves in a market quickly becoming oversaturated.
There is a huge knowledge gap among cannabis consumers. Many are cannabis-naive and simply don’t understand the difference between say, hemp-derived CBD – which must contain less than 0.3 percent THC (the cannabis compound that makes you high) – and marijuana-derived CBD, which may be extracted from cannabis flowers.
And because of continued federal prohibition, robust studies on the cannabis plant’s many compounds (CBD and THC are only two) are few and far between, leaving consumers and entrepreneurs alike in the dark about how cannabis could safely and reliably be used for healing and ameliorative purposes.
HARD TO STAND OUT
As entrepreneurs and companies situate themselves in the industry and race to grab a piece of the market share, they may find it difficult to differentiate themselves from others operating in the space.
Because many businesses often pull from the same supplier, standing out from the competition requires focus on ancillary innovations, like packaging, shipping options, marketing efforts, and community partnerships. However, these types of innovations come at a price, and businesses with smaller pocketbooks may not be able to keep up with other, well-funded companies in the space, whether the business is CBD only or adult-use markets.
ONGOING CANNABIS STIGMA
Even now, despite its massive growth and increasing legality, cannabis remains stigmatized and misunderstood. For example, U.S. media company CBS declined an ad buy intended for the Super Bowl from a CBD company, and military members and professional athletes are barred from using cannabis – even the non-intoxicating CBD – and could be expelled for positive tests.
As mentioned earlier, banks are hesitant to touch cannabis businesses, medical marijuana refugees flee non-legal states to find medicine in those that are legal, families are separated due to cannabis possession, and communities of color continue to be targeted by law enforcement for using cannabis, while others languish in prison for nonviolent marijuana offenses.