MAKING THE WORLD A GREENER PLACE
New Venture Final Report
Loud Dispensary
Panav Dureja (193038360)
Daria Ana Maria Margarit (208207240)
Qirui Wang (190132380)
BU121
Leanne Hagerly
Lab: D04
TA: Jessie Kim
March 27th, 2020
Loud Dispensary
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Table of Contents
Executive Summary​ …………………………………………………………………………….2
Creating Value
Value Proposition ………………………………………………………………………………4
Customer Segments………………....…………………………………………………………..5
Relationships ……………………………….…………………………………………………..5
Distribution Channels ………………………………………………………………………..…6
Delivering Value - Business Operations
Key Partners, Activities & Resources ………………………………………………………….6
Marketing Plan …………………………………………………………………………………7
Operational and HR Strategies …………………………………………………………………8
Capturing Value - Financial Breakdown & Cost Structure
Cost Composition Analysis …………………………………………………………………….9
Breakeven Analysis …………………………………………………………………………...10
Financing Loud Dispensaries ..…………………………………………………………..........10
Cash Burn & Build Rate ..…………………………………………………………................11
Investment Opportunity
Future Projections ……………………………………………………………………….…....11
Risks and Contingencies ……………………………………………………………..….……12
Execution Plan ​………………………………………………………………………………….14
References ​………………………………………………………………………………………15
Appendices ​……………………………………………………………………………………...17
Personal Work Statement ​……...……………………………………………………………...
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Executive Summary
Loud Dispensaries will create a disruption in the new and growing Cannabis Market. By
offering our customers with leading accessibility, convenience, variety, rewards and below
market pricing, Loud Dispensaries will become consumers’ main alternative to acquiring
marijuana.
Currently, to the proximity of the University of Waterloo and Wilfrid Laurier, the closest
dispensary is an hour and a half bus ride away. Additionally, substitutes such as weed maps or
drug dealers, are not always safe, due to frequent lacing. In order to expand our reach and
eliminate inefficiencies, our 2 initial robust vending machines will be installed in areas with a
high level of traffic by our target market : the plaza on University & Philip and University &
King. Moreover, we will be developing an app to work in tandem with our machines to increase
safeness, transparency and encourage customer retention by allowing customers to view what
strains we currently have in stock, read previous reviews, collect loyalty points for discounts and
vote on future strains they would want to consume.
Loud Vending machines are for curious or frequent marijuana users in the WaterlooKitcheners area that eliminates the conflict of time consuming travel and unsafe experiences,
allowing consumers to experience the utmost levels of convenience, variety and simplicity.
Loud Vending machines have strong potential to thrive in the vast and growing target
market. Investors will benefit from a secure revenue stream, as statistically, university life is
abundant with stress & social pressures, which in turn is strongly positively related with cannabis
consumption (​Price, 2019​). Revenue will also be made through promotions paid by advertisers,
to be displayed on both our app and the side of the Vending machines. Within 5 years of our
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launch, we plan to expand the reach of our vending machines to more students, bringing it to
other college or university towns across Canada. This would make our company scalable as the
more machines we own, the more our network and accessibility expands, in other words so our
competitive advantage also grows stronger.
Our business model is the fist of its kind, we expect to be able to reduce costs because of
our strong reputation and customer loyalty is anticipated to act as a source of word of mouth
marketing. Also since our marijuana would be bought in bulk and our producers would be
advertised, we would be able to leverage bargaining power with our distribution network, further
increasing our contribution margin.
In order to effectively create, capture and deliver value to our target market, we are asking
for $160,000 to invest in the operations of Loud Vending Machines. In return, we are giving up a
35% share of our company. We will use this initial investment to fund the development of the
vending machines and our mobile application. The remaining capital is required to acquire
inventory, cover costs related to licensing, the initial strains and begin marketing our product to
our target market. In virtue of the necessary funding, we will be able to take over this market
niche and create a strong brand image.
The Loud Dispensary’s team is formed of 3 entrepreneurs who are looking to revolutionize
the world of Cannabis, reduce inefficiencies, stress related to university, and unsafe first
experiences. Loud Vending Machines, making the world a greener place.
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CREATING VALUE
WHY LOUD DISPENSARIES?
Value proposition
Being a University student comes with many challenges. Students are away from home,
constantly try to keep up with the heavy course load, stay involved on campus, and focus on
building their careers, all at the same time. Needless to say, this can get very stressful. Students
often find themselves looking for ways to relax and are also very curious and willing to try out
new things. They often resort to marijuana owing to its relaxing abilities. In fact, 1 in every 22
college students uses marijuana daily or near daily, and marijuana being the most widely used
illicit drug among college students (“Drug Enforcement Administration”, 2017). Initially we
started off as a social marijuana smoking lounge, but soon after our primary research we realized
we had misunderstood the market. It wasn’t a new location that these students were looking for.
We identified primary customer jobs to be spending time with friends and finding ways to relax
after a stressful day at school. Obtaining marijuana had its own set of pains. There were no
dispensaries near campus and customers were forced to either order online or purchase illegally
through a dealer. Both these methods were really slow, and students were subject to very long
wait times, potentially laced weed, and unreasonable prices. The most important gains they were
looking for were convenience and affordable prices ​(for a detailed visual, refer to Exhibit A).
Keeping this in mind, we changed our product to be weed dispensing vending machines with the
following value proposition, for the curious or frequent marijuana consumers of the Waterloo
region who are looking for a convenient, safe and diverse strain selection. Loud Dispensary’s
vending machines accessibility and our app’s unique features work synonymously to provide a
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customer with a seamless and efficient experience and the convenience achieves a
problem-solution fit in the market.
​Customer segmentation
Using customer segmentation techniques, (for a clear visual, refer to exhibit B) we first
understood the benefits that potential customers seek, segmented the market based on the results,
and then identified their demographic, geographic, and psychographic characteristics to further
discriminate among them. Using the data, we decided to primarily target University students that
don’t have the means of transportation to get them to far away dispensaries and aren’t willing to
pay the unreasonable amounts charged by dealers. Our vending machines are located close to the
two universities in the Waterloo region which makes it very simple for this segment to purchase
marijuana at their convenience, without having to depend on anyone else. In addition to this, we
are also targeting tourists that have a hard time finding dispensaries or dealers due to lack of
information.
​Customer relationships
To strengthen and maintain positive relationships with our customers we will be implementing a
rewards strategy in addition to providing them with a mobile application. Through the app,
customers will receive periodic notifications, keeping them informed of the new strains, and
seeking feedback for the ones that they’ve tried. This will keep us aware of the popular demand
so we keep our customers happy by stocking our vending machines with the strains that
customers enjoy. It also contributes to the total product concept by creating a seamless
experience for our customers. More importantly, our rewards such as a certain amount of
discount for new customers, referral bonus, and free weed for regular customers after every 6
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purchases will make our products psychologically more affordable and keep our customers
repurchasing.
Channels
Like we mentioned before, our products (marijuana), will reach the customers through the
vending machines placed in convenient locations. Since both the universities already have
several vending machines on campus, students are aware of how to use and access them. We
believe our products will be psychologically accepted because it’s a completely new concept and
people will feel safe using them because all strains are tested before going into the machines. We
will develop good relations with our suppliers to offer our products at economically affordable
prices in addition to making them really accessible in terms of availability and convenience.
Vending machines will be restocked regularly based on popular demand and they will be placed
strategically, at easily accessible and popular locations around town. Using strategic advertising
techniques, we will ensure that potential customers are aware of our products, persuaded to
download our app to try, and reminded to repurchase.
Delivering Value
Key Partners
Our most important partner is our supplier. Maintaining good relations with them will help us
buy in bulk at good prices that will reduce our unit cost and increase economic affordability for
our customers. Equally important, we will need engineers that build and maintain our vending
machines and developers that will develop and regularly update our mobile application. They
will help us provide our products in the simplest way possible and also improve our acceptability
in the minds of the customers. In addition to these, we will also partner with restaurants outside
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of which our vending machines will be placed to increase customer awareness and accessibility
(convenience) which will help us achieve our ultimate goal of Market Value Coveragence.
Key Activities
Restocking our machines based on the feedback we receive from customers is our most
important activity for the success of our business. This way we will be providing want satisfying
goods to our customers which will add value to their lives and build customer loyalty. Keeping
our app up to date is another thing we’ll be constantly working on. It will make operating the
business smoother and keep our customers satisfied. In addition to this, we will have all the
marijuana tested before we put it in the vending machines so customers can be assured that we’re
providing safe products and increase psychological acceptability while also contributing to the
critical success factors; providing quality products and services. Last but not the least, we will be
marketing our products continuously to convince the customers of the unique benefit that our
business provides.
Key Resources
The key resources required for the functioning of our business are most importantly the
marijuana that we purchase from suppliers, our mobile application that helps us communicate
with and stay connected with our customers, and our community of loyal customers which we try
to keep expanding to improve our reputation.
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Marketing plan
To successfully market our product to potential customers, we will make use of target
advertisement on social media platforms. This method will be more efficient in reaching our
potential customers because it targets users based on their previous searches. We will also utilize
flyers and posters in popular spots near the universities to reach as many people as possible.
Since we also provide discounts for new users and frequent-use rewards, our customers will be
incentivized to use our products and we aim to gain publicity through event sponsorship in the
Waterloo region. This will provide us with an adequate promotional mix to reach a broad
audience and have as much online presence as possible. (Refer to Exhibit C for a rendering of a
potential advertisement).
Operational and HR strategies
For our business, we need to keep the costs as low as possible. In order to do this we need to
maintain minimal amounts of inventory for which we may rent out a storage unit. Evaluating our
future human resource needs, we decided we’ll be needing 2 employees to keep our business
running. Our employees require a lot of technical skills because they will be responsible for the
periodic maintenance of our vending machines and our mobile application. While hiring, we will
ensure that their values align with ours so we can all work as one unit. We will be paying our
employees well above minimum wage and keep compensation fair to retain our employees. We
will be using recycled plastic to package our products to practice corporate social responsibility
and do our part for the environment. This will help further gain employee commitment.
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Capturing Value - Financial Breakdown & Cost Structure
Cost Composition Analysis
We will initially incur costs with the development of both the Vending machines and of
our app. Specifically, after conducting our market research we have determined that our
machines will cost around $50k, when compared with a similar model of vending machine made
in the USA (Greenbox, 2020). As for the app, it cost around 60k to finance its creation(Kh. &
A., 2020). Then, we will accumulate expenditure from costs related to licensing, which will cost
around $5k (​Cohen 2018​). Costs regarding our inventory will include the ordering and the
stocking of our merchandise, marijuana. After exploring our alternatives, we have determined
that the best fit for Loud Dispensaries needs is a storage unit that costs an average of $150/
month(SpareFoot, 2020). The marijuana is projected to cost an estimate of 8k for both machines,
as we would be holding 1Kg in each (​Joseph, 2018​). Additionally, as a new venture, the
majority of our costs will also include our initial purchases of capital such as the products and
equipment. As well, a major expense during our launch will be the marketing of our product.
Marketing costs within the first three months will include activities that get our brand in the
media, such as paid advertisements on instagram, snapchat and facebook. In the medium term,
our focus will be on maintaining the quality of our product, app and machines, this will cost us
around $500 per month (Moore). Lastly forecasting in the long run, we will analyze the results
and make any necessary changes .
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In the distribution process of our product, costs will accumulate from the wages paid to
workers to maintaining the software behind our Vending machines and the employees who stock
our merchandise. The design and development of both our application and Vending machines
will be outsourced to graduate software engineers or computer science students to help reduce
costs while providing them an opportunity to gain valuable experience. The final major cost will
be the rent of the location of the machines city of Waterloo, Ontario. An allocation of $900 each
month for each machine will be put towards rent. For a more detailed breakdown of our
expenses, see Exhibit D.
Breakeven Analysis
As indicated in Exhibit E, we cover fixed costs after the sale of our 925th unit (or grame), this is
well below our maximum capacity of 2kg per machine, or 4,000 units. This indicates that we
have a lot of room to make profits (specifically 3,075 units sold at 8$ each - 2$ below market
value = $24,600 maximum in additional revenue). However, the breakeven of 925 units can be
sustained on an unanticipated “slow” month, as we would only need to sell 925units from both
machines (or 462 units each).
Financing Loud Dispensaries
In order to meet the various costs of financing a start-up business, each of the three
partners of Loud Dispensaries will contribute $5,000 for a total investment of $15,000. Since
our initial costs of licensing and both app and machine development surpass that, we will
require 170k of external financing to be in the positive cash flow as quickly as possible.
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Since our potential market is larger than our initial Bottom-Up Forecast (see Exhibit F),
we will use the additional $5,000 to invest in more marijuana to keep in our inventory for
backup in case the initial average of 1.3Kg/per month per machine becomes depleted. In
exchange for the investment, we are offering up to 40% equity in our company, to help us
expand our operations by increasing our storage space and for network connections for when it
is time to expand across Ontario and eventually Canada.
Cash Build and Cash Burn
With our current forecasted sales and expenses, our company is expected to make profits
within the first month of operation, with the key assumption of the external investment for our
equipment and license totaling at 165k. (Outlined in Exhibit G). We are confident that loud
dispensaries will be able to always sustain itself since ; as seen in our income statement, our
revenues always cover our costs of sales and expenses. From the cash budget, it can be seen that
in the first month, we had a cash excess, which we intend to use as investment money when we
further expand and manufacture more machines in order to further increase our financial
performance.
Investment Opportunity
Future Projections
The potential annual growth rate of the cannabis production industry in Canada is estimated to be
65.0%
over the ten years to 2024; however, in this period, Canadian GDP is projected to
increase at an annualized rate of 1.7% (Irigoyen, 2019). The considerable contrast between these
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two rates indicates the typical characteristic of a growing industry. In addition, the industry
products and services segmentation shows that recreational marijuana, which is Loud
Dispensary’s main products, accounts for 66.6% of the total (Irigoyen, 2019). Considering the
satisfactory industry data, our business will thrive in the market.
Loud Dispensary sells marijuana through vending machines with the service of ordering and
receiving notifications through our app (See Exhibit H for app). Therefore, the future sales
performances of
vending retailing and mobile e-commerce are crucial for our business. In
Canada, the strong competition in the vending industry made sales slight decline in the past five
years (“Vending in Canada”, 2020); however, it is estimated to increase at an annualized rate of
1.8% to $500.2 million in the next five years (Koronios, 2019). The e-commerce industry is in
the maturity stage with approximately 25% growth up to 2024 (“Mobile E-Commerce in
Canada”, 2020). Based on the stabilization of these two industries, the operation of Loud
Dispensary will not be a problem. Moreover, since combining vending, e-commerce and
cannabis sales is an innovation in the market, even though the initial investment will be higher as
a “pioneer”, according to the economic growth theory, there will be an increasing return to scale
in the future.
Risks and Contingencies
In terms of risk and contingency, three risks may happen in future operations. The first one is the
high costs of suppliers. The cost of marijuana is the highest in our cost structure. If the supplier
asks for an unaffordable unit price, Loud Dispensary should try to find other suppliers with a
lower unit cost. One possible way is to seek new suppliers in foreign countries with lower labour
costs; however, we should also re-calculate the variable cost since the supply in other countries
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means a higher cost in transportation. Another plan is to negotiate with the initial supplier, for
example, if Loud Dispensary can buy cannabis in bulk to get a lower price.
Secondly, low downloads of the app and low sales of marijuana may be a problem. There will be
several methods working together to address this problem. Advertising on social media will
considerably increase the awareness of Loud Dispensary since our target market is university
students, and they are the major group of people using social media. One point that should be
noticed is how to advertise our business more effectively through social media. It is no doubt that
creating our official account is essential, but initially, it is hard for students to realize there is a
new business working for them. Therefore, advertising through other well-known accounts is
crucial. Loud Dispensary will make attractive posters to post on local social media, such as
university and club accounts, to deliver the information directly to university students. Another
approach is to offer our product free for innovators (KOL - key opinion leaders) in the Waterloo
area. By asking them to provide feedback in the form of short videos posted on their social media
(such as Tik Tok) and tell Loud Dispensary’s story to the public, customers will be aware that
Loud Dispensary provides convenient cannabis. Furthermore, Loud Dispensary can give a lower
price to early adopters, who are the true first customers, to let them share their experience with
their friends. By the information spreading, consumers will realize the affordability and
accessibility of Loud Dispensary. Thus the problems of low downloads of the app and low sales
of marijuana are solved.
The last one is that the vending machines and app are to contribute some profits by advertising of
other businesses. However, if no company wants to advertise on our machines and app, along
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with the contingency plan on low sales, Loud Dispensary can use the door-to-door method to
show our growing sales and the potential of helping the company to increase awareness.
EXECUTION PLAN
In regards to our implementation, we will be using our fund of $100,000 to initially fund the
development of Vending Machines and the software development of the app. With the rest of the
funds, we will validate our business through required licensing such as ​the three-part licensing
system for cannabis retail stores which are issued by the OCRC following a detailed application
process (​“​How to Get a Dispensary License in Canada” 2020​). Additionally, we will launch our
marketing plan, maintain our supply, analyse customers' requests on wanted strains and find
suppliers for our marijuana strains. (See exhibit I for detailed gantt chart). Thus, our main goal is
to thoughtfully and continuously is to always meet our customers' needs by continuously making
sure their wants are met through our seamless integration of their requests from our app.
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Reference
Cohen, G. (2019, October 23). How Much Does it Cost to Open a Cannabis Dispensary?
Retrieved March 3, 2020, from
https://www.covasoftware.com/blog/the-true-cost-of-opening-a-cannabis-dispensary
Greenbox: Self Dispensing CBD & THC Vending Machines. Retrieved March 2, 2020, from
https://greenboxrobotics.com/
How to Get a Dispensary License in Canada. (n.d.). Retrieved March 20, 2020, from
https://www.sharpbusinessplans.com/business-plans/cannabis-marijuana/dispensary-licen
se-canada/
Irigoyen, S. (2019, October). Retrieved March 12, 2020, from IBISWorld,
https://my.ibisworld.com/ca/en/industry/11141ca/industry-outlook
Joseph, R. (2018, October 18). Here's how much cannabis costs across Canada. Retrieved March
1, 2020, from
https://globalnews.ca/news/4563144/heres-how-much-cannabis-costs-across-canada/
Kh., N., & A., E. (2020, January 2). How much does it cost to make an app for your business in
2020. Retrieved March 2, 2020, from
ht​tps://www.cleveroad.com/blog/how-much-does-it-cost-to-create-an-app
Koronios, E. (2019, May). Vending Machine Operators in Canada. Retrieved March 22, 2020,
from https://my.ibisworld.com/ca/en/industry/45421ca/industry-outlook
Drug Enforcement Administration.(2017). ​Marijuana Use among College Students.​ Retrieved
March 3rd, 2020 from
https://www.campusdrugprevention.gov/sites/default/files/Marijuana%20Use%20among
%20College%20Students%20%28Final%29%20%285-23-17%29.docx.pdf
Mobile E-Commerce in Canada. (2020, March). ​Country Report.​ Retrieved March 23, 2020,
from Passport https://www.portal.euromonitor.com/portal/analysis/tab
Moore, T. (n.d.). What's the Cost to Maintain an App? - App Press. Retrieved March 3, 2020,
from https://www.app-press.com/blog/whats-the-cost-to-maintain-an-app
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Price, S. (2019, September 5). Study shows that cannabis combats stress, anxiety and depression.
Retrieved March 15, 2020, from
https://www.healtheuropa.eu/cannabis-combats-stress/93193/
SpareFoot. (n.d.). Retrieved March 3, 2020, from https://www.sparefoot.com/storage.html
Spears, E. (2019, February 18). New automated budtender machines are ATMs for weed.
Retrieved March 2, 2020, from
https://www.thegrowthop.com/cannabis-business/new-automated-budtender-machines-a
re-atms-for-weed
Vending in Canada. (2020, March). ​Country Report.​ Retrieved March 23, 2020, from Passport
https://www.portal.euromonitor.com/portal/analysis/tab
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Appendix
Exhibit A - Value Proposition Canvas
Exhibit B - Market Segmentation & Perceptual Map and Preference Analysis
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Exhibit C- Instagram Ad Example
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Exhibit D- Income Statement & Cash Budget
Loud Dispensaries
Cash Budget
Months of
January
February
March
April
May
Cash Balance,
Beginning
$10,000*
$13,300
$19,570
$21,343
$26,908.7
Add Receipts
$14,900
$20,800
$14,900
$20,800
$14,900
Total Cash
Available
$24,000
$34,100
$34,470
$42,143
$41,808.7
Less
Disbursements:
Wages Expense
$8,000 $10,400
$8,000 $10,400
$8,000
$1,600
$1,600
$1,600
$1,600
$1,600
Inventory
Expense
Marketing
Expense
Maintenance
(app & machine)
$300
$300
$300
$300
$300
$300
$300
$300
$300
$300
$500
$500
$500
$500
$500
Rent
$1,800
$1,800
$1,800
$1,800
$1,800
Income Tax*
$0
$1,330**
$1957
$2134.3
$2690.87
Interest**
$0
$0
$0
$0
$0
Total
Disbursements
$10,700
$14,430
$12,657
$15,234.3
$13,390.87
Cash
Excess/Deficiency
Minimum Cash
Balance
Required
$13,300
$19,570
$21,343
$26,908.7
$28,417.83
$10,000*
$10,000
$10,000
$10,000
$10,000
$0
$0
$0
$0
$0
$3,300
$9,570
$11,343
$16,908.7
$18,417.83
$0
$0
$0
$0
$0
$10,000
$10,000
$10,000
$10,000
$10,000
Financing
Required
Surplus Cash
Loan Repayment
Cash Balance,
Ending
* Minimum balance includes purchase of marijuana, and wages, our 2 highest costs (rounded up).
**small business tax rate is 10%/ month
***interest loan 3% monthly
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*Since each of our machines can hold 1KG of marijuana, we want to hold more than we need in case of unexpected extra demand
and we are assuming that we would sell around 900 on average of those 1kg at a bellow market price of 8$ instead of $10 (THE
GROWTHOP). Additionally, we expect to obtain 500$/month from our ads.
** We will carry 1.5Kg (and expect to see 1.4KG on average) during midterm and exam as we anticipate more consumers.
Exhibit E- Fixed Costs
Fixed Costs: (per month)
Wages- restocking and maintenance (part
time labour @ $20/hour, 2 employees)
$1600
Inventory (Storage units)
$300
Maintenance of App and Machines
$500
Rent
Total Fixed Costs
$1,600
$4,000
Variable Costs:
Marijuana
Variable cost per unit *
$8,000 or $10,400 (average
of 9,200)
$3.68
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Exhibit F- Bottom up/ Bottom Down
Exhibit G- Cash Build/ Burn
Cash Build
Net Sales
$109,539.53
Cash Burn
Add:
Cash Operating Expenses
Interest
Taxes
Capital Expenditure
$56,8000
$0
$8,111
$10,500
Less:
Changes in Payable and
Accruals
Total
Net sales
$2,765.54
$72,645.46
$109,539.53
Net Cash Build
36,894.07
Cash build rate: (NCB/12)
$3,074.51
* 1000 or 1500 (depending on month as mentioned above) available units to buy per machine; on average 1,250
** Selling price per unit 8$
Breakeven = CFC/ (selling price per unit - variable cost per unit) = 4,000/8-3.68 = 4,000/4.32
​
= 925.93 units
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Exhibit H- Markups of our App
Exhibit I- Gnatt Chart
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