Disruption and Growth Within the Cannabis Industry
Innovation may be commonplace within the cannabis industry, but growth will soon be uncommonly difficult for many businesses in this space. Rather, growth is possible –– provided entrepreneurs accept the price of “success”: dilution of equity and an increase in debt, which devalues their respective shares and decimates each founder’s ability to pursue his or her goals. Consider this scenario an extraction of the lifeblood of a brand, as that company seeks to extract more oil from every seed of cannabis; as that company seeks to survive, never mind thrive, in a marketplace that is as competitive as it is cutthroat; as that company seeks to expand into additional states without putting itself in a state of financial straits that requires the aid of a straitjacket escape artist.
I exaggerate not in the slightest, which is why I believe in the future of Extraction-as-a-Service, where companies have access to the otherwise prohibitively expensive extraction equipment, and the experts who can oversee and customize the use of this machinery, so businesses can achieve the economies of scale they need to grow. Without this option, consolidation within the cannabis industry will be more an issue of survival of the fittest than success of the best and brightest.
Investors can attest to that fact. They want a return on their investment, which, to borrow (and modify) a phrase from the late Richard Feynman, means it does not matter how beautiful your business plan is, it does not matter how smart you are. If your plan does not agree with the economics, it is wrong. The sooner business owners accept this truth the sooner they will prioritize how they can grow without the growing pains of a marked spike in operational costs and added costs to consumers.
All of which leads to a discussion about the “oil crisis” within the cannabis industry. That is, for all the popular news coverage (including this piece from the New York Times) about CBD lotions and oil, for all the hype these stories generate, there will be an inevitable blowback when consumers learn that they pay for all the oil they think they need –– which does not mean they get all the oil they want.
This scenario is more an issue of when rather than if, because if there is one constant in life, and there is, it is this: Human nature is very predictable, and not necessarily in a good way. There are – and there always will be – companies that seek short cuts; that spend a not-so-small fortune to build their brands over the course of many years, only to have greed or stubbornness destroy – in the course of a day or even an hour – what no marketing expert can undo with all the money in the world. That scenario is inevitable for some, but it is avoidable for most; it is preventable, provided companies give consumers a product worthy of its claims, because each claim is worthwhile in its own right.
Extraction-as-a-Service is the solution not only to the situation described above, but the salvation for businesses that have the potential to revolutionize the cannabis industry and the economy as a whole. That statement may be bold, but it is not inaccurate, because it is a statement of fact concerning the most effective way to grow without the twin burdens of debt and dilution. It is a safe path toward scalability, which brings us closer to innovation that is as creative as it is conducive to creating opportunities for all manner of professionals in this space.
Welcome, in other words, to the future in the present tense.