The Cannabis Extraction Business Plan Guide

Overview

A well-crafted cannabis extraction business plan can help you to formulate a successful growth strategy for your company and, if required, secure investors’ finances. It is a strong foundation for your business, allowing you to remain organized and focused on the most critical aspects of your operation. For a cannabis extraction business to be successful, it needs careful planning and preparation in the form of a detailed business plan. 

Cannabis extraction or also known as cannabis manufacturing is a booming industry. According to BDS Analytics, concentrates are among the fastest-growing segment of the cannabis consumables market. The extraction of cannabis is now worth over $7 billion and may reach $28.5 billion by 2027, with an annual growth rate of 16.6%.

The legalization of cannabis is becoming more prevalent; you can review each state’s opportunities by clicking here. Investors and entrepreneurs will be swarming to obtain a piece of this booming market segment as demand is this high. It would help if you began with a detailed cannabis extraction business plan to thrive in this quickly expanding industry. A business plan is necessary for licensing and may help you get your company off to a good start.

Cannabis Extraction License Requirements

To get a business license, applicants must submit a business plan in most states. Several states do not provide licenses specifically for cannabis extraction. You must apply for a permit to manufacture or process cannabis in most circumstances. You may also need to apply for a license to distribute cannabis in certain circumstances. While this article is about a cannabis extraction business plan, you can click here if you want to learn more about cannabis manufacturing compliance. You can also check our guide about how to get a cannabis manufacturing license.

The application processing and acceptance can come with a significant expense. For instance, the licensing fee for a manufacturer’s license in Connecticut is $25,000. In New Jersey, the manufacturer licensing fee is $20,000 for up to 10,000 sq ft and $30,000 for more than 10,000 sq ft. The associated expenses vary significantly from one state to the next.

Tips to Create a Successful Cannabis Extraction Business Plan

Get a sense of your company’s overall concept

Where do you make your mark? What is your product, and where do you get your materials? Who is your target audience? Before doing any planning, answer these and many more questions since they are significant aspects you should consider.

Pick the appropriate type of business model

The following are the several business models most often used for cannabis extraction:

• Tolling – Tolling is the practice of an extraction lab receiving a set charge per gram in exchange for taking cannabis flowers, turning them into oil, and then sending the resulting oil back to the grower so that they may sell it on the market. This strategy has the lowest possible risk, but it also has the lowest possible return.
• Spot Market Sales – Spot Market Sale is when your organization buys cannabis or hemp biomass, transforms it into crude oil, and sells it on the wholesale market when the price is favorable. This strategy requires time, luck, and market knowledge. If you pay attention, it’s a low-risk way to generate money.
• White labeling – A different business supplies the material, and the extraction business transforms it into various SKUs branded with the initial business’s name. After then, it goes up for sale. Although it results in smaller earnings because you do not make any money off the sale to the end user, this strategy includes a reduced risk level.
• Retail – The company first buys the flower wholesale, and then utilizes the flower to make extracts, which are branded with the company’s name and sold to retail customers. It’s got the ability to bring in the most significant profit margin, but it also has the most risk.

Pick out your product category

When selecting a product line, consider the answers to the following two questions: Which cannabis extraction techniques are you hoping to offer your customers? What kinds of finished goods do you want to be able to manufacture?

Among today’s most popular cannabis extracts are the following:

• Crumble – a cannabis extract that is dry and crumbly
• Wax – an extract of cannabis that has a texture that is somewhat sticky and elastic
• Shatter – has a final consistency that is brittle and may break easily
• Budder – butane is usually used to make budder, which is also “whipped” until it has a texture like butter

Other cannabis extracts are named to reflect the extraction method employed to produce them. The tincture, live resin, ISO Hash, CO2 oil, and Butane Hash Oil (BHO) are some items that fall under this category.

Determine the startup costs for your extraction business

Your location, the size of your firm, the extraction techniques you use, the type of product you want to extract, and a host of other considerations will all impact the initial starting expenses for your extraction lab. When developing a business plan for cannabis extraction, be sure to conduct research and factor in the costs of obtaining a license and purchasing equipment and supplies, acquiring real estate and constructing a facility, paying overhead expenses, purchasing insurance, and undergoing inspections.

Cannabis extraction lab setup

Laboratories must follow best practices, comprehend regulations, and operate with steadfast compliance to reduce risks. Your business plan should include how you plan to set up your cannabis extraction lab. This information is of the utmost importance to state and local authorities, architects, and engineers working on the construction of your laboratory. It is also of critical importance to your team for budgeting and planning. When planning your layout, make sure that you put the workflow, safety, space, and scalability at the top of your list.

Parts of a Cannabis Extraction Business Plan

Executive Summary

The executive summary should include the essential parts of your cannabis extraction business plan. Be short and to the point, while showing that you’ve thought about how your business will succeed.

• About the company
• State and federal laws that affect your business and its goods and services
• Plan for funding business
• Capital injections & investments
• Financial forecasts

Market Analysis

The market analysis demonstrates that you have done the necessary study. In addition, it helps contribute to your marketing strategy by identifying your ideal consumer and investigating the purchasing patterns of potential customers.

• Estimated figures from the international markets for cannabis, hemp, and CBD
• The market for hemp and cannabis in the U.S.
• Your state’s hemp and cannabis market
• Target market
• Competitive analysis
• Strengths-Weaknesses-Opportunities-Threats (SWOT) analysis

Revenue Plan

A revenue plan provides a structure for generating income for a company and a benchmark for determining the company’s potential to remain profitable over the long term.

• First-quarter, 6-month, 12-month, etc. revenue benchmarks
• Outline present and prospective products and services
• Your ideal customer, their pain spots, how you can solve their problems, and how you’ll keep and grow their loyalty
• Branding, marketing, and advertising

Operational Plan

The operational plan of a cannabis extraction business plan explains how to carry out the business’s day-to-day operations as well as the company’s overall functioning. While the previous sections discussed your objectives, this one will focus on how you intend to achieve those objectives.

• Location and the facility’s floor plans 
• Cost projections for equipment, maintenance, depreciation, and replacement dates
• Extraction and refinement processes
• Labeling and packaging
• Purchasing, production, and distribution logistics
• Relevant legalities, local and national rules, and compliance requirements 
• Solution for testing and quality control as well as tracking from seed to sale

Management Team

It is best to have a solid organizational structure and plan for your staff to prove that your extraction business can do well. Showcase the backgrounds of your key players, focusing on the skills and experiences that prove they can help a company grow.

• Business structure
• Executive team
• Personnel plan
• Org chart that details job responsibilities

Financial Plan

Within the financial section of the cannabis business plan, outline the amount of money the company needs to raise and the allocation. The information for the financial plan is from studying the other comparable businesses and accurate estimates.

• Funding analysis
• Direct and operating expenses
• Prediction of profit and loss
• Statement of cash flows
• Five-year balance sheet showing corporate net worth and financial status
• Break-even point 

Assumptions, Sensitivity, and Risks

A statement that is assumed to be correct without any supporting evidence is known as an assumption. In business, assumptions are used to plan and make decisions in the face of uncertainty. 

A sensitivity analysis evaluates how various independent variable values impact a dependent variable. Sensitivity studies examine how different sources of uncertainty in a mathematical model affect its overall uncertainty. This approach has unique input-dependent limits.

Business risk is exposure to factors that diminish earnings or cause failure. Business risks harm a company’s financial objectives.

• Assumptions
• Sensitivity analysis
• Risks 

Conclusion

If you’ve read thus far, you’ve probably gained some confidence in your cannabis extraction business plan.

Preparing a business plan for cannabis extraction might take many months, but you should never rush the process. If you have a well-thought-out strategy, you’ll be better prepared to meet hurdles along the way and build on your first successes.

Cannaspire’s experts can help you with writing your cannabis extraction business plan. Contact our experts now for more information about our cannabis extraction business plan services.