Welcome Oklahoma and Michigan!
It’s been an interesting five years since we started publishing Marijuana Venture. Judging from the feedback we receive at trade shows and industry events, the magazine has become an important source of information for both the cannabis retail and cultivation communities. To be honest, about 90% of the feedback we get is positive. We often hear that Marijuana Venture is the only publication that is truly business-focused and promotes solid and legitimate business practices, but we occasionally get negative comments from people because we’ve focused on the best available science, rather than cannabis culture.
We knew that might happen; when we launched Marijuana Venture, we decided it was important to publish articles written by authors with academic backgrounds or experience that went a bit deeper than “I’ve been growing weed for decades.” I believe it has served us well to focus on authentic business experience, and most of our readers have come to understand that there’s a huge gulf between the illegal, untaxed pot business and the current, highly taxed and regulated legal adult-use industry.
Or to put it bluntly, how-to grow articles in High Times are about as useful to a commercial cannabis operation in 2019 as a musket would be in modern warfare.
Prior to starting Marijuana Venture, I founded and ran a software publishing company called Topics Entertainment that grew to a $60 million business.
Over the years, I’ve come up with some “do’s and don’ts” based on observations made in the field, from interviews with cannabis business owners, interactions with myriad professionals who service the industry and from my own personal experience running Topics. Here is what I’ve learned:
Do hire outside the cannabis industry. When legal cannabis first launched in Washington, I remember dozens of cultivators bragging about their “master grower” who won a Cannabis Cup or Dope Cup. Fast-forward a year or two, and most figured out that winning a Cannabis Cup is meaningless when it comes to running a commercial production facility.
Managing a real farm with real employees requires skills you learn in college or get working at other successful commercial farming operations. Managing 30 plants in a basement is not the same thing as managing 3,000 plants and 30 employees in a commercial greenhouse. The obvious takeaway here: Hire experienced managers who have actually run a profitable business in the past and teach them about cannabis later. Not the other way around.
Don’t try to do too much. Most successful businesses in the U.S. get that way by being highly focused. When Ray Kroc took over McDonald’s back in the 1950s, he reduced the menu from dozens of items to five: cheeseburgers, hamburgers, fries, Coke and milkshakes. It allowed him to focus on cooking quickly, fast service, economies of scale, franchising and expansion. The message from Kroc is simple: Focus on one thing and do it well.
From farming to building airplanes to creating business software to franchising burger joints or creating successful retail chains, most highly successful companies stick to one thing and execute well. You’ll never hear of a cattle rancher who thinks it wise to open his own burger joint for the simple reason that he knows his core competency is raising cattle and not operating restaurants.
The takeaway: If you want to grow weed, grow weed. Leave refining, distribution, packaging, operations and sales to folks who know that end of the business. Follow the traditional agriculture model; it’s successful for a reason!
Don’t get sucked into vertical integration. Vertical integration has always sounded like a good idea, but rarely is. When I ran Topics Entertainment back in the late 1990s and early 2000’s, we were one of the largest CD-ROM consumer publishing companies in the United State. We sold tens of millions of CDs each year. One day, one of my operations people suggested that we buy our own disc-pressing machine. At the time, they cost about $250,000 and could press thousands of discs a day. It sounded like a good idea; if we ran our own machines and bought the basic materials to create discs in bulk, we’d be able to reduce our costs from about 20 cents a disc to 15 cents.
I talked to a very smart friend who was a senior exec at Microsoft and ran its consumer software group. He explained to me that Microsoft looked at the same scenario, but quickly (and wisely) decided that pressing discs was not its core competency and would be a distraction. He pointed out a lot of questions I needed to ask: What happens when the replicator breaks or needs service? What happens if your operator quits? Who’s in charge of buying bulk plastic for the discs? When do you replace the old machine with a new one? Who do you sell the old one to? The message was clear.
Smart business people focus on a core business and refine it. A retail chain that has to worry about managing its own cannabis farm is one that will not have the freedom to buy the best product at the best price for its consumers, and will eventually discover that worrying about the farm distracts from creating the best possible retail operation.
Do focus on customer service and the shopping experience. It was only a few years ago, but I have some really interesting memories of early pot shop experiences. Some made the mistake of hiring snotty, know-it-all types who looked like they came out of the pages of High Times and acted the part. While that sort of behavior might have served them well with the established marijuana culture demographic, it tanked with soccer moms and the general public who were eager to learn and take another look at cannabis.
Consumers have long memories and running a marijuana retail store is no different when it comes to customer service than an apparel store or burger joint. Nordstrom is famous for its great customer service, and over the decades it’s created an extremely loyal following. It’s a lesson all cannabis retailers should pay attention to and follow closely.
Do hire great sales people. In the early days of Topics Entertainment, a fellow tech CEO told me he hired sales people based on the simple idea that he wanted people “who could sell widgets.” He would teach them about his product line later. Often in business, the most successful companies have the best sales and marketing teams and not the best products. Look no further than the early days of Microsoft for proof of that.
Don’t invest in an idea, invest in a management team. As I wrote in my editorial this month, Theranos was once a highly touted tech company that cost investors hundreds of millions of dollars. The book “Bad Blood” chronicles the massive fraud and deception perpetrated by the Tharanos management team. It’s a great read. Sadly, stories like the Theranos debacle are not that rare.
Warren Buffett, who is arguably the best-known investor in the U.S. (and one of America’s wealthiest individuals) has famously stated that he invests in management teams, not ideas. Cannabis investors would be wise to heed the advice of Buffett.
While there are undoubtedly some great investment opportunities in the cannabis space, unless the team behind the company is rock-solid and experienced, the investment will likely be very risky. Do your due diligence and take a careful look into the background of the key players in any cannabis company before you jump in.
Do spend time and money on packaging. At Topics Entertainment I made a decision in the late 1990s to expand from VHS/DVD distribution into CD-ROM publishing. My key hire at the time was a former Costco assistant buyer who worked in the book/media department and was responsible for buying roughly $200 million of CD-ROM products each year. After I hired him, we quickly realized we made a great team. One of the first lessons he taught me was that it’s much easier to sell a mediocre product in a great box than a great product in a mediocre box. He told me plenty of stories about smart former Microsoft programmers who spent millions on the development of brilliant software programs, but then went on to design their retail packaging at home on a computer in their basement. Bad, amateur packaging often killed sales of good products.
Recently I had a similar conversation with one of the owners of a big Washington cannabis retail chain. He told me about a grower who pleaded with him to keep his products on the shelf even though they didn’t sell. The problem was the packaging. According to the store owner, it “sucked,” and consumers were turned off by it. The fact that the weed inside might have been top-shelf was irrelevant. All consumers react to color, design and a clear message. Spend time on your packaging and hire a design pro with a track record of creating winning consumer products just like every other successful product manufacturer does.
Do some basic research. Washington and Colorado have been at it for more than five years. If you’re thinking about jumping into the cannabis industry as either a cultivator or retailer, visit one of the states — or all the states — with an established legal marijuana industry. Ask questions. Have an open mind and be ready for some surprises. We’ve watched people make the same mistakes over and over in this business, and it’s amazing how little homework most do.
A few of these messages may sound like business basics to some, but the truth about the marijuana business is that too many people got into it for the marijuana and forget that it’s a business.
Keep that in mind, keep your eye on the ball and remember the basics; they work for a reason.
Greg James is the publisher of Marijuana Venture and SunGrower & Greenhouse magazines. He has more than 25 years of experience running a consumer software company with more than $500 million in sales to Walmart, Costco, Amazon, Best Buy and other major retailers.