Investing is always a tough business. Cannabis investing is especially difficult due to the wide variety of fees and regulations each state imposes. For this reason, making sound cannabis investments requires time and effort to get right, and even then it can still be confusing.
At Higher Yields Cannabis Consulting, we have the industry knowledge and expertise to help you gauge investments and avoid some of the most common mistakes new cannabis investors make. As a result, you’ll see your cannabis investments thrive and get the best return on investment.
Here are five cannabis investing pitfalls to avoid.
Overvaluation of Cannabis Investments
We get it, you’re excited to be getting into the cannabis industry — we’re excited for you! — but don’t let that excitement cloud your judgment. Too many new investors see the potential for high revenue and end up paying far too much for a cannabusiness. Once you’ve overpaid, it can take a long time to get your money back, and by the time you do, the local market will likely be saturated to the point where prices have significantly fallen.
Paying too much for your cannabusiness is an easy pitfall to avoid, though. Working with an experienced and knowledgeable valuation professional allows you to appropriately value new investments and avoid overpaying.
Losing Money to Taxation
Understanding the tax codes by which your business must abide is crucial to maximizing profit and minimizing run-ins with the government. If you structure your cannabusiness properly, your cannabis investments may yield anywhere from five to seven percent more profit. If you set up your business incorrectly, on the other hand, you’ll lose out on those profits and may even increase your risk of being audited.
There’s a fine line between structuring your business to increase profit margins and doing something that will get you into trouble with the IRS — and nobody wants to deal with that. Fortunately, some states — like California — offer free educational materials to help cannabusinesses avoid tax trouble. One of their biggest pieces of advice: If you need clarification, ask for it — and get the answer in writing. In some states, you may be protected if you’ve been given wrong information.
Violating Ever-Changing Regulations
Cannabis — and by extension, cannabis investing — is still a fairly new industry in this country. As a result, the laws and regulations surrounding it often change. Staying up-to-date with new and upcoming legislation will keep your cannabis investments in compliance with local and state regulations.
Furthermore, it’s easy to keep an eye on legislative pipelines. Nothing ever happens overnight, so you’ll almost always be aware of what new regulations are headed your way. This information allows your business to proactively comply with any new laws or regulations.
Getting into the Wrong Cannabis Sector
Oftentimes, when people think of cannabis investing, they think of either cultivation and growing or retail dispensaries. However, the industry is far larger than just those two types of cannabis investments. Ancillary businesses in the cannabis industry encompass everything from point-of-sale systems to agricultural technology and from real estate to HVAC.
At Higher Yields Cannabis Consulting, our Pivot Program helps budding cannabusinesses and market veterans alike adapt to an overly competitive and unstable playing field. We create a pathway to success that’s uniquely suited to your values, vision, and, of course, your budget. Ancillary cannabis investments are highly lucrative. We can help you grow your ancillary business and succeed.
Settling for a Subpar Location
When it comes to cannabis investing, geographical location can make or break your business. Knowing that a certain state is 420-friendly certainly doesn’t mean it’s easy or cheap to get into cannabis there. In states with merit-based application processes, it’s harder to get a license, but the rewards can be much greater. In states like Oklahoma with non-merit-based — or real-estate-based — processes, it can be much easier to get a license, but it’s still expensive and the market may be more saturated.
Choosing the right location is more than just understanding state requirements, though. It’s not uncommon to see local governments imposing additional regulations on cannabusinesses. For example, in Costa Mesa, California, all new dispensaries are required to have their security plans reviewed and approved by the local police department. At the end of the day, geographical location is crucial for your cannabis investments to succeed; be sure to research both state and local regulations.
Cannabis Investing Is Tough, But It Doesn’t Have to Be
When it comes to making sound cannabis investments, learning from others’ mistakes can maximize your chances of success. Appropriately valuing your investment, effectively handling taxation, keeping up with regulations, getting into the right cannabis sector, and choosing the best location will set you up for success.
Unfortunately, costs can add up quickly and unstable markets can dramatically shift. Even if you avoid these five pitfalls, you may find yourself needing to make a change. If that happens, our Pivot Program will set you up for cannabis success in a new direction.
Here at Higher Yields Cannabis Consulting, we help your business maximize its chance of success in the cannabis industry. Contact us today to schedule a free consultation!