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Thriving In The Volatile Cannabis Industry

Why BIG Cannabis "Failed"

In the past few years, a flood of investment capital from unwitting investors inflated a few of the largest operators in cannabis. After the unicorn projections didn't pan out, they flopped. Overextended spending on real estate, brands, people, and parties couldn't meet with scalability and revenue needed to grow a sustainable business.


Why did these huge corporations fail? They didn't build from the ground up with real networks and customers in place. Outpacing the burgeoning industry, the big-pharma like top-down companies had no base to build such large empires. These executives raised money on a hope and a dream with no viable infrastructure in place. Coming into a new industry, they built a model around a more mature market and the scalability just didn't exist.


Buying into the emerging cannabis market, they believed having the most money and biggest stock prices is all it takes to win. Start with a large pool of cash to attract more investors to a huge opportunity, then pay yourself as much cash as possible before the business is proven.


The biggest "loser" executives and shareholders made out with a ton of cash while in the business. They overspent on expensive meals, travel, and lavish trappings. Living it up like rockstars, despite failing miserably to create a functional business model and deliver on revenue goals.

It's been the dotcom boom & bust for cannabis.


Failing Big Was A Huge Success For Insiders

Executives and investment firms made out pretty, while employees, vendors, contractors, and farmers lost almost everything.


Thousands of acres of hemp products were left in fields and storage while farmers waited for their contracts to be fulfilled. [Other companies bought too big of infrastructure without proving their grow ability and now have thousands of dead plants and a failed business model.) Many were 100% bought-in on a single MSO purchase agreement that disabled them from seeking new buyers costing farmers millions in lost revenue.


While farmers filed bankruptcy and massive layoffs hit workers at the bottom, institutional investors fleeced the corporate coffers for their preferred stock payouts and golden parachutes.


Money In The Bank

A prominent CEO of the biggest failure in cannabis (so far) immediately received investor backing in a new venture. Why would institutional money back a "huge failure"?


Fees...


If making money is the only goal, then failed business model was a massive success ... for institutions. Raising huge amounts of cash on the back of bloated pro-formas and untested business models paid huge fees to institutions backing the raise. Why demand proof of concept in a "sure thing" market that the public and everyone else sees as inevitable?


The terms were simple, for raising hundreds of millions and billions of dollars, institutions could pay themselves outsized fees — negating any potential damage. It's a win-win scenario for the controlling group. It looks great on short-term portfolio growth and enabled them to raise more money and fees. They never cared to show behind the curtain of green, money wasn't flowing back into the corporate coffers.


What Does This Mean For Canna-preneurs?

Veteran entrepreneurs in the cannabis space and emerging canna-preneurs should be very careful.


There's a lot of money being dumped into cannabis brands. Some of it is well-intentioned and some of it isn't.


Know who to trust. Band together with like-minded businesses, partners, and investors that want to see sustainable growth. There are plenty of good people in cannabis developing leading-edge products, services, equipment, growing quality plants, and giving back to the community. Not to say every big firm is "evil," but it's plain to see what matters to most— $,$$$,$$$,$$$.


Support The Industry

There are many organizations doing their best to grow cannabis equitably and sustainably, while creating outsized returns. It doesn't take inflated pro-formas and an exponential growth-to-bust models to win big in the burgeoning marijuana industry.


What can you do?

  • Build the business without overextending.

  • Support the people you trust.

  • Position yourself with the people that support you.

  • Know what it takes to outcompete in your niche.

  • Stand on your values and principles.

  • Treat people right.

It may not be as sexy as a unicorn, but rising tides lift everyone.

Let's lift each other up.


Wyatt Lampley,

Co-Founder, Brand Strategy

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