Photo: Hyoung Chang | Getty Images
Photo: Hyoung Chang | Getty Images
The following is an extended excerpt of Javier Hasse’s book Start Your Own Cannabis Business. Buy it now from Amazon | Barnes & Noble | IndieBound
Consider the story of Andy Williams, co-star of MSNBC’s “The Pot Barons of Colorado” and serial cannabis entrepreneur. In just a few years, Andy and his brother Pete built a marijuana empire that includes Medicine Man Denver, one of the largest and best ranked cannabis dispensaries in the U.S.; Medicine Man Technologies, a marijuana industry consulting services and solution management company that trades over the counter under the MDCL symbol; an intellectual property holding company; and a real estate holding company, among others.
This anecdote provides a good example of how to capitalize on your connections and find help in the people around you and shows the importance of having a clear, solid business plan when pitching your business to investors–even if you are related to them. Details in this chronicle also expose the significance of sound financial modeling, as well as the value of being flexible when setting up and scaling a cannabis business; sometimes, prejudice can still make it an uphill journey. So, let’s jump in.
Growing up, Andy and Pete were far from affluent. They had, nonetheless, managed to build relatively decent careers for themselves. Andy, an industrial engineer who had not been very lucky with his business ventures in the past, had made it to the management levels of the corporate world. Meanwhile, Pete had set up a custom tile company, but to make ends meet, he also worked as a caregiver, helping medical marijuana patients in Colorado.
Being in constant contact with cannabis and having a knack for inventions, Pete had come up with his own system to grow marijuana and was making pretty good money from the sale of pot. Nonetheless, growing weed illegally in his basement was not ideal.
When the Ogden Memo came out in 2009, providing certain assurances to legal cannabis businesses in states that allowed for them, Andy connected some dots and arrived at the idea of turning Pete’s underground venture into a legitimate business. He was determined to make it big time.
By then, the mother of the Williams brothers had married a well-heeled man. So, Andy and Pete put a business plan together and decided to pitch it to their mom, Michelle, and her husband, Lou Zeman, even though they had never used cannabis before, nor had they ever expressed any interest in the industry.
As Andy narrates the story, it seemed like the couple liked the proposal because they quickly agreed to put in $150,000 in seed capital.
So far, this story proves a great example of how to form a team with the people around you and how to get financed by friends or family members. A good business plan is crucial to achieve this, Andy explains.
When presenting the idea, Andy talked about “what the potential market was, the unique position of being in an industry that was just being born, and being able to take the market leadership…”
“However, it was the numbers that really did the talking,” he adds. “Our job was to explain why those numbers were achievable because they did not look achievable. Pretty much the opposite: the numbers looked too rosy in terms of what we could make…But the fact was that the margins back then were just huge–with a pound of marijuana selling for roughly $4,000 in the wholesale market.”
The initial business plan the Williams brothers came up with included financial projections for three years. “They were very detailed, month-to-month forecasts for each year,” Andy notes. “Our projections were based on how the market looked at the time, what we projected the market would be, how much [cannabis] we could grow, etc. Five years later, my brother Pete decided to compare these projections with the actual numbers, and they were pretty damn close.”
With that $150,000, the siblings set out to find a physical location for their company-to-be, Medicine Man.
Now, what is left of this tale shows other elements that a really complete business plan should include: things that the Williams brothers could not anticipate and things that brought them big headaches as time went by.
The first big problem the Williams brothers encountered was real estate. Even though vacancy rates at Denver were pretty high at the time, nobody was willing to rent out their space to a marijuana grow operation. After a thorough, extensive search, the siblings finally came across a 40,000-square-foot building in Montebello–an industrial area in Northeast Denver–that was partly occupied by a spice company. The smell the factory emanated made the remainder of the property undesirable to almost any entrepreneur. But Medicine Man was no regular venture, and their business would be no stranger to strong odors either.
Having secured a physical location, Medicine Man was ready to go online.
The margins in 2009 were “very forgiving for an entrepreneur,” Andy recognizes. “Making that kind of money, you could afford to make mistakes because you could afford to fix them.”
Nonetheless, the Williams brothers’ projections for their initial capital needs were still pretty light. It took a total investment of $630,000 to make the company’s cash flow positive.
“We had no idea of the complexity increase of going from a basement to an industrial setting,” he says. “Those were the expensive lessons we had to figure out: how do we take this home grow to an industrial setting? Understanding that was what really cost us money.”
The remainder of this Pot Baron’s story is pretty well known. After two very successful years in operation, Medicine Man bought the entire building where the grow was originally established, ultimately forcing the spice factory to move elsewhere.
Due to state regulations, the Williams brothers were quickly forced to get into the retail side of the cannabis industry as well. This vertical integration ended up being fundamental in the construction of a brand that now enjoys not only statewide but also nationwide recognition–if not fame.
Capitalizing on that good name, Andy, Pete and a business associate and now friend, Brett Roper, started another company in 2014: Medicine Man Technologies. As the brothers’ companies continued to expand, they undertook other endeavors, including the creation of an intellectual property holding company, a real estate holding firm, a cannabis processing and research company, and even a business that invests in cannabis businesses and helps them go public on major stock exchanges. In addition, the Williams brothers are extremely committed to “the fight to protect the industry from those who want it dismantled and the fight to normalize the industry at the local, state and federal levels.” They are often a part of the cannabis-related legislative process in their home state of Colorado.
In the end, the largest challenge an entrepreneur faces in the cannabis industry is getting funded, Andy concludes, and having a secure plan from the get-go can help earn that funding.
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