Managed Services vs The DIY Model: Choosing a Retail Model For Your Business (Part 3)

This is the third and final instalment of a series. You can read part one here, and part two here.

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In our final instalment of our Cannabis Retail Models series, we’ll examine Managed Services and the DIY models closely, and evaluate why you might choose either one for your own business. Getting started in cannabis retail is definitely getting easier, even though the stigma and legalities loom over the industry, they are starting to reveal clear cut paths toward business opportunities that are impossible to pass up.

However, just because things are getting easier, that doesn’t mean they are simple. Cannabis businesses still have more risk and legal stipulations attached to them than virtually any other retail business. These liabilities can be difficult to comprehend and implementing best practices takes time and dedication. Things can be especially difficult when you’re pulling most of the weight yourself in a DIY model, but ownership and equity is its own reward.

Cannabis consultants, or, managed services providers are groups and firms that help you make the tougher, more technical decisions in your business. This can be a much more realistic option for those interested in scaling a brand themselves, but not without a little help.

Why the Managed Services Model Works

While things are a little more set in stone in Canada, even the most progressive of states are still figuring out exactly how to roll out and enforce cannabis laws. This ambiguity and uncertainty makes it not only difficult for business owners to fully understand what’s required of them, but also for banks and lenders, as well as legal and accounting departments to offer their services.

There are rules and specifications that are wrapped around every aspect of the business, from packaging to product storage to the signage you’re allowed to display. The penalties and consequences for missing even a minor compliance step are massive.

Managed Services companies are designed to take some of the risk and inexperience out of the equation by helping you figure out crucial stages of your business, similar to a consultant. The right consultant can give you exactly what you’re looking for, and normally these brands have experienced personnel that have dealt with different industries with similar red-tape and legalities.

The expertise of managed services firms and consultants can vary widely. Usually there’s no “one stop shop” for everything you need to run your business, meaning consultants often specialize in a specific area, or utilize expertise across different industries to give you a competitive advantage.

Verdant, for example, is a managed services company that specializes in cannabis, but also touches real estate, hospitality, and e-commerce. Their promise is to support entrepreneurs for every step of the process, from pre-launch to post-launch, ensuring that your needs are met as efficiently as possible. Other managed services models may vary on what they specialize in and where their expertise sits, but for Verdant, their services are all encompassing. One of their non-negotiables and core pieces of their workflow is reporting.

“The glue that holds all of it together is a solid cannabis retail POS. That’s where Cova comes in. Proper reporting and the ability to analyze your business are the requirements for us to continue moving your business in the right direction”, said President of Verdant, Cameron Brown.

Pre-launch is likely the most important aspect of your business due to the steep learning curve, and all the stipulations that have to be met before you can even open doors to the public. This process includes location acquisition, retail design & management, marketing, launch and on-boarding.

Your focus should remain on building out the brand and differentiators, while the managed services or consulting firm typically focuses on the efficiencies, infrastructure, and operations. The biggest tip or takeaway if you’re considering this option is to know what your needs are before meeting with suitors in this space. Identifying your specific needs and understanding what success looks like helps you identify what kind of consulting actually fills a gap in your business, and what you’re willing to spend to get it.

Certain consultants can help you tackle more than one area, but most will specialize or have a core few functions that they lean on the most. In fact, choosing several specialized consultants may feel like it costs more up front, but it could likely save you frustration, headaches and money in the long run. If a consultant claims they can do everything in several areas of expertise, that’s a good reason to be hesitant about the offering altogether – they may be overpromising on what they can deliver.

Why the DIY Model Works

If the collaboration of the Managed Services or consulting model isn’t appealing to you, and you’d rather save the extra coin and you’re confident in assembling a team with enough cannabis experience, the final model we’ll examine just might be for you.

The DIY Model is exactly what it sounds like. This involves starting and running the business yourself, with minimal oversight or influence from outside parties. With more control over the products, ownership of your own retail brand, and lower monthly operating costs, this option can be extremely enticing. At the same time, doing all the work yourself and figuring out who to work with and what your store needs can be a major headache.

Kia Ora Kannabis in Thunder Bay, ON is a great example of this. Their journey actually started while attending a free seminar – How to open a Cannabis Retail Store hosted by Cova in Ontario in early 2019, and ever since partners Matt and DJ have quit their jobs, saved money, and spent the time necessary to build a differentiated brand from scratch.

Part of this process involved looping in “industry leaders” early in the process, whether that was companies they’d rely on for tech and software (like Cova) or partners on the business and operations side that they could get involved in early stages. Through sourcing a building, designing and putting together a store themselves, securing funding, sourcing reliable suppliers and building brand and credit, Kia Ora went through the long-haul.

While this may sound gruelling, Kia Ora did things this way for good reason. The build out cost was much lower since they did things themselves. They had full control of the design, brand and image and had more independence and flexibility without having parent companies/franchises to answer to. They’re enjoying the higher profit margins, no additional operating costs, and they are taking pride in creating jobs and building teams across different locations in their communities, without the veneer of a corporate entity. Oh, and they get the personal fulfillment of owning the entire retail brand and running a business on their own!

The key takeaway from the DIY model and Kia Ora’s success is the level of preparation, foresight and deliberation they approached this with. Matt and DJ both allocated months and months of time ahead of time, they talked to their prospective partners far in advance, they did everything they could to reduce the learning curve by relying on contacts and attending workshops, and they gave themselves time to figure out which suppliers and brands to actually work and collaborate with. They even opened the store early to sell accessories and started building a brand and relationships before they could even sell cannabis.

Finally, let’s look at the abbreviated points on which model suits your business goals:

The Managed Services Model is for you if:

  • You want to run your own brand but pay the professionals and experts to handle the aspects you don’t want to.
  • You want to leverage a network of professionals in finance, operations and legal but you don’t want to pay the piper through Franchising.
  • You are a new entrepreneur in the cannabis space and you’d rather hire help to facilitate growth than give up equity in your business.

The DIY Model is for you if:

  • You place ownership, equity and higher profit margins high on your priority list for starting a cannabis business.
  • You want full control of design, brand and image without relying on external or internal parties for say-so and direction.
  • You want to manage and operate a store independently without handing the reins off to someone else.

POS and Inventory software is the heart of your retail operations. No matter which cannabis retail model you choose, you need the right systems in place to help you run your business.

Cova is more than just a tech company – we are partners who guide our clients at every stage of development. Click below to learn more about what Cova can do for you.

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