The Seven Cannabis Factions - Part II
Art By Rebekah Jenks
This article is coming from the small craft company perspective, but in our humble opinion, the MSOs that will be the future “national craft level brands” will use what could be called “The Dana White/UFC model.” Think of small craft businesses as the fighters. Dana White does not invest in only one fighter and hopes they win. Instead, his business model makes money no matter who is winning or losing.
The MSOs that have ownership in dozens of craft businesses, while still allowing the companies to be independent, will have the strongest foundation (i.e. Dana does not tell a fighter how to fight). The diversified approach of owning independent businesses protects from serious issues becoming a systemic risk to the MSO, effectively isolating mistakes made by an individual entity. As a result, the MSO’s risk drops and the probability of success is increased.
Like a fighter in the UFC, small businesses want to make enough money to support their families and those around them. They understand they are not in competition with the Dana Whites of cannabis, but this type of MSO will be able to build data from comparing the performance of all the craft businesses in their portfolio. With ownership in so many independent companies, the craft company MSO will easily determine what brands and teams they want to take national when federal legalization happens. In this way, they create allies out of small businesses, whom we all know are the greatest competition for the larger entities. All we can say is, may the best Dana win!
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MULTI-STATE OPERATIONS
MSOs definitely have a place in the industry, but the current way many of their lobbyists are going about it will lead to confrontations with small businesses over licenses and with consumers over the right to homegrow. From a craft growers point of view, there is room for both big and small businesses. In an ideal future, there will be three types of MSOs:
1. The Dana Whites of craft cannabis who everyone will love, including the consumers.
2. The fast-food model. Enough said.
3. The large-scale cannabis suppliers exclusive to the pharmaceuticals.
The proposed amendments below are designed to address the main concerns of those wanting to dramatically restrict licenses. Yes, it is based on more small business licenses, but it is a far cry from the 300 production licenses per million in Oregon that crashed the market and product quality. Supporting these adjustments to state laws would make new allies out of small craft businesses, who will be very helpful to MSOs in preventing total domination by the one group that has more lobbying power than them. The pharmaceuticals.
Here are our suggestions for state amendments regarding MSOs:
1. 100 production licenses per million people in adult use states (25 production licenses per million in medical-only states).
2. 200 retail licenses per million people in adult use states (50 retail licenses per million in medical-only states).
3. Pharmaceutical companies should not own cannabis production. The large-scale adult use producers (with combined production licenses in a state exceeding 6,00 0lbs annually) should be phased out of adult use production licenses and reclassified under a new license category - “Pharmaceutical Cannabis Suppliers.” This would happen in states with more than 100 production licenses per million people. This is a logical way of reducing the licenses to correct the market without harming anyone.
4. Adult use production licenses in the United States should be limited to 6,000 lbs. usable dry flower annually, until national legalization.
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INVESTORS
Cannabis investors are best served with all cannabis factions finding our own lanes. Investors should have a clear path to invest in any of the business models, such as:
1.Those who choose to invest in small craft companies, “The Microbrewery Model,” will have enough equity for input/mentoring to help the company succeed, and it could be very rewarding if the entity is able to secure a loyal consumer base. Although the investor would have less diversification in their portfolio than if they invested in the right MSO, the cost of equity would be significantly less.
2. The investor that chooses to invest in the MSO “Dana White/UFC model”. These investors will have a very diverse investment with limited risk. Additionally, MSOs invested in dozens of craft brands will be able to assure their investors of having future national brands in their portfolio.
3. Investors who want to own large farms that will eventually produce cannabis for the pharmaceuticals should have a clear path to do so.
4. Pharmaceutical medications will be the choice of many investors who want their investment in the hands of future pharmaceuticals. This will definitely be a secure investment for those who choose it.
The suggestions for amendments to state laws in this article are written to provide a pathway for everyone to focus on the model they believe in. Investors need to see a clear focus claimed by businesses based on the aspects of cannabis they want to invest in.
Previously, investors had to trust those they were investing in, because skilled cannabis growers did not have proof of ROI (unless the investor knew enough about cannabis to identify quality cannabis from the grower). Unlike other industries, there wasn’t an established wealth of knowledge previously gained for investors to base decisions on, and the excitement of the new “green rush” drove a lot of capital in the wrong direction(s).
Those with craft growing skills do not always have college degrees that relate to cannabis. They were reliant on years of experience and constant mistakes made with the plant that they won’t make again. The future of cannabis investing should and will hopefully be more diversified between Small Businesses, MSOs, and Pharmaceuticals.
