State legalization has led the way for federal legalization. Will you be ready to expand your business when the time comes?
New legislation is signaling that federal legalization is on the horizon. CAOA provides a path for legalization at the federal level and a framework for how small businesses in the botanical extraction industry can grow.
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Legalization keeps picking up speed. During the last few years, state-by-state legalization has brought incremental change to the industry, and as each new market opens, the industry experiences a growth spurt and an all new crop of customers.
But state legalization is merely the appetizer for this still fledgling industry. Federal legalization, on the other hand, is the main course.
For businesses that specialize in the production of botanical extracts, the future of the industry is simultaneously exciting and stressful. There’s incredible potential for an economic boom, but how can you position your company to reap the benefits of what you’ve sowed?
When Will Federal Legalization Happen?
It’s hard to predict a definitive date for federal legalization. This fluid process has seen many starts and stops over the last decade, and how close we are to legalization depends largely on the powers that be, with one side of the aisle more clearly in favor of legalization than the other.
This past July, a year after first unveiling a draft of reform legislation, three U.S. senators formally filed the CAOA. The release of this act put advocates and stakeholders on high alert; it’s the closest we’ve come to seeing federal legalization take off. Of course, the bill must be taken with a grain of salt.
Rather than signifying immediate legalization, this bill will more likely spur further negotiations and serve as a building block toward a reform package that’s agreeable to both sides of the political spectrum.
In any case, the stage is set for very real action in the realm of federal legalization.
How To Prepare for Federal Legalization
As the country moves closer to federal legalization, it’s crucial for companies in this sector to lay the groundwork and pursue initiatives to capture a share of the market within the industry. You don’t want to be unprepared when federal legalization is unleashed and the market truly explodes.
Luckily, there is precedent for companies spearheading expansion efforts before emerging markets open. Entrepreneurs within the botanical extraction industry can look to these other sectors for examples of how to prepare for a potential windfall of new business opportunities.
Scaling a small business effectively and efficiently requires a smart approach. It should include input from various parts of the company, such as:
- Sales
- Marketing
- Finance
- Legal
- Technology
- Organizational
Each arm of your company plays a role in preparing for federal legalization. In the next section, we’ll examine seven specific areas you can strengthen before the botanical extraction market expands into new territories.
1. Conduct Independent Market Research
Federal legalization will open doors to new customers. In order to get in front of those customers, you need to conduct independent market research so you can create the products or services they crave.
Marketing research offers insight into the customer base and suggests what kinds of new products may be profitable. Let’s say you manufacture a botanical extraction that’s super popular in one part of the country. That’s great! But will that product hit the same in another region?
By researching the answers to specific marketing questions, you can learn whether or not you should tweak ingredients, change packaging, or alter delivery methods. Market research can also reveal blindspots in your business by showing you what you aren’t offering that consumers are clamoring to purchase.
Independent market research is essentially a roadmap to success in a new marketplace.
2. Create a Trustworthy Brand
Establishing and maintaining trust with customers is essential to the long-term success of any company. Consumers are more savvy than ever, and with the world at their fingertips via the internet, they are also more informed than ever. No matter how they decide to spend their money, you can be sure they’re making informed decisions.
This point is even more true when it comes to botanical extraction customers. People who purchase botanical extracts are highly particular about their favorite products. These customers value a brand that’s trustworthy, unique, and instantly recognizable, and when they find a brand they like, they are incredibly brand loyal.
To show your brand is trustworthy:
- Be human: Put a premium on customer service. Customers will develop trust when it’s easy for them to find your contact information, for example.
- Tell your story: Customers trust people, not faceless organizations. Use your brand story to show your customers exactly why they can trust your expertise.
- Always be transparent: Authenticity and transparency go hand in hand. Low-value messaging is a key indicator to customers that you are being inauthentic.
- Connect with customers: Companies often fail because they don’t communicate clearly with customers. For starters, keep an active social media presence.
- Share testimonials: Don’t hide your customer reviews. Consumers are always looking for advice from other consumers. If they can’t find reviews, they won’t trust you.
- Know your stuff: If you don’t show off your botanical extraction expertise, you can’t build trust. Develop a well-written, educational blog that demonstrates your expertise.
When you build a trustworthy brand, you ensure you’re ready to take on the wider audience that comes with federal legalization.
3. Solidify Organizational Makeup
When federal legalization hits, it will cause a lot of young companies to grow up fast, perhaps too fast for their own good. When a company expands too quickly or changes happen too drastically, organizational structure can get tangled and confusing, which leads to low productivity, high frustration, constant interruptions, longer work hours, and poor time management.
A solid organizational structure defines everyone’s role throughout the company, clearly stating who does what and how each person helps the company meet its objectives. There are many different types of organizational structures, such as:
- Functional: Also referred to as bureaucratic organizational structure, this divides the company up into departments.
- Divisional/Multidivisional: This method structures teams based on products, projects, or individual subsidiaries.
- Team-Based: As the name suggests, companies are divided into close-knit teams that serve specific goals and functions within the organization.
Optimizing your structure ahead of federal legalization can ensure your business is on solid ground before the marketplace expands.
4. Build Strong Business Finances
Any way you slice it, there’s a direct correlation between strong business finances and profitability. Of course, botanical extractors don’t get into the extraction business because they are passionate about finances. Chances are you’re in the industry because you believe in the product and love science, but you also want to make some money.
To successfully manage and expand a business, decisions need to be grounded in financial reality. This means strong financial planning and building budgets with sales forecasting. The country’s combined medical and recreational extract sales could reach $33 billion by the end of this year. With federal legalization, that number will surely skyrocket. Sales forecasting helps you anticipate how you’ll cut a profit from this mammoth market.
5. Know Current State Laws and How They Might Change
As mentioned earlier in this article, state-by-state legalization laws are in a constant state of flux. Markets that were once closed to extraction businesses are now fertile ground for extractors.
State laws tell you exactly where you can sell your product for recreational or medicinal purposes and where you absolutely cannot. Of course, federal legalization would ostensibly alter these laws, but there’s a good chance some states might push back on federal legalization. Keeping a close eye on current state laws and how they might change is imperative to the future success of your business.
6. Strengthen Product Standards
While a wider consumer audience could mean a boom to your business, it could also expose shortfalls if your products aren’t up to the standards of nationwide consumers. With federal legalization, extractions are poised to become one of the largest growing consumer packaged goods (CPG) in any sector. As such, your business must be up to standard.
You can do this by embracing the CPG model for products. CPGs are items that are used by consumers every day and require constant replenishment. This includes food, beverages, clothing, toiletries, and more.
Here’s how to raise your standards and make successful CPGs:
- Use the highest quality substances
- Never cut corners
- Convert all measurements to grams
- Source your substances
- List all ingredients
- Creatively design packaging
- Don’t be afraid to go bold in design
- Use sustainable packaging
- Distribute your product through the right channels
- Advertise your product
- Make your product launch an event
7. Secure Intellectual Property and Patents
A wider audience of consumers could increase the chances of theft by bad actors looking to steal what isn’t theirs. As federal legalization nears, it’s vital that you secure your intellectual property and any product patents.
Intellectual property (IP) encompasses original ideas, discoveries, and inventions, along with the designs and creative work you produce. This could include certain equipment designs or extraction methods as well as end products that are the result of your extraction work. In today’s world of highly advanced technology, you have to safeguard that work from thieves and copycats.
Register Copyrights, Trademarks, and Patents
These are three of the most common types of IP protection. Each grants you and your business exclusive rights to your creations, specifically in the commercial realm.
Register Business, Product, and Domains
Registering the business, product, and domain name protects your interests, identity, and your business. You can even secure these names during the planning stages, before you officially form your business.
Create Confidentiality, Non-disclosure, and Licensing Contracts
Protect your company’s classified information from leaking to the public before you’re ready for launch. If that info leaks out early, it could lead to lost revenue in the future.
Implement Security Measures
Guard against cybercrime and theft by protecting your digital assets. Technology fuels growth, but it can also be used for nefarious purposes.
What Extraction Companies Can Learn From Federal Hemp Legalization
Hemp was legalized nationally in 2018. With that paradigm-shifting decision, scores of new businesses were launched. As federal legalization of botanical extractions nears, business can learn a lot from what hemp growers experienced during their journey into the mainstream marketplace.
Be Patient
It’s been years since hemp was legalized nationally, and policies are still being enacted. In fact, it took almost a full year after legalization for the federal government to release the rules surrounding hemp production. And it was another year or two before banks started to view hemp businesses as legitimate and worth the investment.
Expect Oversight
Federal agencies, such as the U.S. Food and Drug Administration (FDA), keep a close eye on hemp producers. There are lab protocols and product samplings to contend with, obstacles your product has to overcome before it reaches consumers.
Brace for the “Gold Rush Effect”
Initially, the hemp industry saw a great deal of success; highly knowledgeable individuals who knew hemp inside and out led the industry. But as hemp became more and more popular, novices with no experience jumped on the bandwagon. This resulted in poorly managed businesses, subpar products, and an oversaturated market. Guard against this by ensuring you and your team maintain top-level skill.
