Congratulations. You've successfully built a U.S. cannabis ancillary business and are now in the enviable position of making plans to expand to other emerging markets around the globe.
Not so fast.
For U.S. non-plant touching cannabis businesses, going global can be a road fraught with potholes, "no trespassing" signs, and what can feel like big fences and locked gates. The move across borders requires considerable homework and steely resolve. You have to understand the business climate and regulations and the legal implications of missteps, which can differ widely between countries.
Here are some key things to consider before taking the leap.
Related: 3 Tips For Cannabis Start-Ups To Be Successful in Global Markets
One of the biggest mistakes a company can make is not clearly and effectively evaluating the Total Available Market (TAM). You cannot simply consider market size, but you must hone in on your specific niche. A thorough TAM analysis is a must for identifying how much room there is for growth in the market. Don't assume that you can target the same portion of the market you targeted in the U.S. The segmentation of the market might be different. For example, a company selling water pipes would run into stricter regulations in Queensland than in New South Wales, Australia.
Make a point to study your competitors and narrow in on what's attractive to your target buyer. Ask: What they have been buying that you hope to replace with your product? What kind of brand awareness and loyalty exists, and what would you need to do to capture a share of that market?
Get clear on your budget required and then add a 10 to 15 percent contingency on top of that. Consult with an expert who has done everything you are about to do successfully before, multiple times in the specific market you are targeting. This cannot be overstated. Setting up shop overseas is an expensive proposition—you have to consider everything from funds to level up production, operating costs, taxes, import duties, to country-specific marketing campaigns. The EU VAT tax bill can often come as a surprise, and the seller does not collect it, making it vital to have a good understanding of the VAT directive, which can differ markedly between countries. A little insider advice here goes a long way.
Managing product, inventory, and fulfillment in a foreign country is challenging and requires a lot of planning and patience. Are you going to trust a wholesale network or distributor with your significant investment in goods? For example, most wholesalers don't want to deal with the assembly of products, and often fully assembled products will incur hefty import tariffs and taxes.
A common way around this is to ship your product in multiple pieces, then have final assembly on-site in the destination country. But taking this route requires reliable management and quality control on the other side. This is a common practice for goods bound for EU countries, often due to the high standards around manufacturing and assembly there.
Certifications for parts, such as electrical components, are often country-specific and need to be considered depending on the import country. At GreenBroz, we made sure all our electrical control panels were UL listed in the U.S., cUL listed in Canada, and CE listed in Europe well ahead of any planned expansion into these new markets. It's much easier to have these certifications checked off ahead of time, so you are ready to go and can execute the expansion plan at the right time.
Currency is a major consideration. If you are sending a product to Canada or Australia the exchange rate is 75 cents on the dollar in your favor. But if you do not want to do business in, say, Venezuela right now, their market simply cannot afford to buy what you're selling (due to their current rate of hyperinflation and the continuing devaluing of the bolivar).
The state of a country's currency is essential, so is its long-term economic stability. Is there an upcoming election? What might the business climate look like if there is a change in leadership? These are important things to consider.
For the savvy company looking for the path of least resistance, all roads lead to Europe. By and large, the currency is stable, and an election does not usually lead to sweeping reforms or huge changes in business practices. Importation is straightforward for most products, and the market is welcoming of U.S.-made products. Things are getting easier in Spain and France as well. Spain is the unofficial epicenter of cannabis in the EU, and the government finally realizes this. France has moved forward with a beta run on its medical program.
Columbia, a country historically plagued by the intertwining of politics, cartels, and cannabis has some distinct advantages for the less risk-averse. Fluctuations in international currency exchange can lead to the strengthening of the U.S. dollar against the Colombian Peso. This can set up a favorable climate for business expansion, offering cheaper operating costs and much higher profit margins than you would ever see in the U.S. or Canada. Initially only allowing the exportation of concentrates, Columbia recently voted to allow flower exportation, adding a new opportunity for businesses to evaluate.
The most important tenet of marketers is 'know your audience'. In Europe, for example, it often won't be the same kinds of things that capture customers' attention as in the U.S. Coca Cola is a master of this. They have widely differing marketing campaigns depending on the country and culture and even have different recipes that cater to the palates of specific populations. You have to ask yourself if you have the resources to provide what the customers in another part of the world want. This may mean a different, location-specific nutrient formula, specialized packaging, smaller product sizing, or a different post-harvest processing machine.
In many parts of the world, such as Australia, the customer wants a smaller, lightweight trimming machine so they can throw it in the back of a ute and quickly move to another location. In a less well-established market, the mobility of a device becomes more important than the scale, whereas a more mature market like Canada is looking for the most prominent, fastest end-to-end system you can give them.
Laws, as they pertain to marketing, are much more stringent in many countries. The false advertising charge in the EU is no joke. They take it up at the federal level. It can have severe implications if someone accuses you of false advertising, such as a complete suspension of all sales and an extensive product recall mandate. Hiring an EU lawyer who is at the top of their game is a must. You do not want to make a mistake in this area.
Hiring for international expansion requires evaluating language considerations, as well as the culture of doing business. You need employees that already understand how things are done in your target country. They also understand the sometimes complex language situation.
When we were looking to penetrate the Canadian market at Boveda, we had to have labels on all packaging in both French and English because Quebec is predominantly a French-speaking province. If you are operating in Barcelona, Spain, you may also consider printing labels in French because of its proximity to the border.
It's a good idea to hire employees who speak and write fluent English and the country's primary language. This ensures there are little is lost in translation. You don't want any legal issues due to a misunderstanding that could have been prevented by hiring the right people. Keep in mind that in a vast majority of companies, human capital is the most considerable expense. Employees are the energy that makes things happen for a business.—at home and abroad.