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7 Crash-and-Burn Mistakes in Cannabis Retail


Successful cannabis retail goes beyond just winning the license. While 85% of cannabis retailers break even in their first year, many others fail, and most struggle to reach their full revenue potential.

At Cova, we’ve worked closely with more than 800 stores in major cannabis markets across the US and Canada, so we’ve witnessed what works and what doesn’t when opening a cannabis dispensary. Some stores post thousands of transactions per day. Others — unfortunately — struggle to gain momentum and quickly fold.

In this post, we’ll share the top 7 mistakes that torpedo otherwise healthy cannabis businesses and give some advice straight from our top cannabis POS customers.

Mistake #1: Choosing a Poor Location for the Price

Choosing your cannabis real estate presents hurdles — hurdles that you’ll likely need to overcome even before you're awarded a license. Regulators want to see a lease agreement in place before they issue a license. So, right from the start, you’ll need to consider things like zoning, lease terms, parking, traffic patterns, and the community’s attitude toward cannabis.

On a practical level, you’ll want to research the proposed area’s demographics to see if they align with your target customer. Are the local residents the right age mix? The right income level? Do the prevailing politics of the area represent your target customer? Check out the population density of the area, too, and see whether the area gets good commuter traffic.

Once it comes down to selecting a specific storefront, look for a place that’s well-lit and inviting, with adequate parking and a clearly visible entrance. Consider the layout of the existing building and what a renovation will entail. Renovation costs can be significant, especially for new retailers. And in the era of COVID-19, you may want to scout out a place with a convenient curbside-pickup location as well. Work within your budget to find the best place possible, but acknowledge that your location may be a compromise based on your financial resources.

The vibe of the neighborhood is critical when opening a cannabis retail store, and it can tell you a lot about how people are using the area. If restaurants and coffee shops are located nearby, that’s ideal. It means people are there to recreate and relax. A liquor store or headshop is a positive sign too, because it tells you an audience of cannabis consumers comes “built-in.”

Mistake #2: Missing Deadlines and Failing to Respond to Change

Things change fast in the cannabis industry, so there’s no room for internal bureaucracy. Your company needs to make decisions quickly — often without full knowledge of all the variables — and implement those changes at lightning speed.

One retailer had sage advice for market entrants: if you have a realistic timeframe for a goal, cut it in half — and work at double the speed. The same goes for regulatory deadlines and licensing. You’d be wise to assume everything will be twice as difficult as you expect it to be and apply twice the effort to get it done.

In the wake of COVID-19, Cova helped retailers comply with regulatory changes, literally overnight. Many regulators suddenly permitted online ordering and delivery — and some banned brick & mortar sales. To survive, many retailers turned to Cova and implemented online ordering. Read more below.

Even without COVID, managing regulatory change takes a lot of homework. Successful cannabis retailers read industry literature and legal statutes constantly and carefully. They keep abreast of the current laws for every location in which they operate, and look for trends on a national level too. That way, they’re quick to respond when the rules change, and can develop accurate compliance plans on the fly (and they avoid these top 7 cannabis mistakes).

“If you’re not tall enough to get on the rollercoaster — or you can’t stomach the drops, loops, and screaming — then don’t get on in the first place. Nascent industries are forged by those crazy enough to get onto that rollercoaster before it’s finished being built.” 

— Harrison Stoker, VP of Brand, Donnelly Group

Mistake #3: Neglecting to Build a Brand or Building a “Brand for Everyone”

Successful cannabis companies brand themselves well. And nowhere is that more true than in the Canadian market, where retailers have access to the same supply of cannabis flower sold through government channels. When everyone is literally selling the same product, the only way to rise above the competition is to change how you sell that product.

Vancouver-based Hobo Cannabis Company has succeeded thanks in large part to their strong brand. Hobo’s parent company, the Donnelly Group, runs numerous restaurants, each with its own distinctive flavor and disruptive branding. Branding — and operational excellence — have enabled them to open 13 stores with record setting transaction levels.

The central tenet of branding, according to the Donnelly Group’s Harrisson Stoker, is to laser-focus on a market segment. Do not build a brand for everyone! Decide on the type of customer you want to connect with and step into their shoes to create an unforgettable experience. For Hobo, that meant connecting with consumers who have an adventurous, bohemian spirit (like the 19th-century “hobo” travelers) and alienating the rest with their somewhat controversial name.

Mistake #4: Lack of Operational Excellence

A creative brand won’t last without competent dollars-and-cents management. Cannabis retail can be quite lucrative, but it isn’t necessarily so. Successful entrepreneurs make sure to mind their budgets, cash flow, and P&L statements.

When starting a cannabis retail operation, expect a long burn time — that is, the time during which you’re spending money but not yet making sales. You’ll need to handle renovation costs, licensing, and capital expenditures for equipment. Then, you’ll need to pay your staff for training before you open your doors. Many entrepreneurs underestimate their pre-sales burn rate, and the mistake has proven deadly for their companies.

Cannabis success requires you to stay organized and lean. By continually shaving a quarter-percent from their operating costs and constantly experimenting with better procedures, they become more and more profitable. At first, profit margins may be low, but with skillful management and tracking, little tweaks can snowball into wealth.

Mistake #5: Settling for Cut-Rate Technology

Good technology makes you efficient and improves your customer experience. The Cova POS platform makes transacting at the register easy — but the functionality doesn’t stop there. 

Our platform integrates with more than 20 strategic partners like Dutchie, Leafly, Weedmaps, and Shopify to expand your presence on the web and keep your inventory accurate. These integrations allow Cova customers to offer online shopping and delivery (where legally permitted). We currently have more than 400 API integrations that enable your POS to sync with your CRM, analytics, security, accounting, financial, and ERP systems.

The Cova POS platform also helps retailers keep an eye on their finances with easy-to-use reporting features. Daily, weekly, and monthly reports give Cova customers a comprehensive view of their operation for better forecast and cash flow analysis. Moreover, accurate reporting helps keep you compliant.

Mistake #6: Letting the Black Market Eat Your Lunch

Cova customers report serious difficulties caused by illicit cannabis dealers. As one retailer notes, “the black market will eat you alive.” Illicit retailers have every advantage: they operate without taxation, their products don’t undergo expensive testing, and they have much lower overhead.

Lobby your regulators to crack down on the black market. If you’re aware of black-market or gray-market activity, report it. Not only does the black market impact tax revenue, it also presents a serious consumer health risk. Unregulated flower is often full of mold and pesticides. By working with regulators to improve consumer safety (and increase tax revenue), you become one of the “good guys” to regulators. That makes fighting your local black market a win-win.

Mistake #7: Being Slow to Adapt to the New Normal and External Forces

The pandemic and social distancing has made crowded retail stores an impossibility, so if you’re starting a cannabis retail store, you’ll want to implement online sales and delivery service as quickly as possible. Fortunately, the technology is there to make it happen.

The Cova POS platform integrates with online ordering services so you can make sales through third-party online menus or directly on your website. And soon, Cova will offer it’s own online menu platform. Your customers will be able to buy directly through a Cova-hosted menu, or buy through your site straight from your POS.

When your customers buy online, Cova automatically syncs your inventory levels with your website. That way customers get accurate information — and never arrive to find that their purchase is unavailable. You always know what’s been sold and what’s left in stock, even if the already-sold goods are waiting at the online pickup window.

Additional API integrations available through strategic partners like OnFleet make it easy to deliver cannabis to your customers’ doorsteps. You can track your delivery vehicles, keep your routes efficient, and reconcile your transactions with your inventory in real-time. 

These online ordering integrations work so seamlessly that Hobo Cannabis Company was able to launch a delivery service, literally at a moment’s notice. When their local regulators permitted delivery, Hobo had their cars on the road in less than 24 hours! To find out how they did it, you can read more here

Whether you’re running a cannabis retail store now or are just forming your business plan, Cova can help. We’ve helped countless retailers — both big and small — get off the ground and grow. Cova customers are more likely to succeed because we provide more than a POS system; we give you real-world advice from years of experience in the industry. 

If you’re ready to maximize the potential of your retail business, we’re happy to help you with a free consultation. Reach out to one of our representatives now!




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