I recently had lunch with one of the partners in a Northwest-based cannabis retail chain that is expanding into several other states and planning to go public.
This company has recently received some big investments, as well as a lot of interest from bankers and lawyers who want to guide it through the IPO process. I’ve known this particular business owner for several years. We’ve met for lunch a half-dozen times since I launched Marijuana Venture, and I wasn’t surprised about the big capital investment and interest from outside advisers, mostly because this individual obviously had a vision from the start. He is a listener who seems to instinctively know that his success would be tied to good hires from outside the marijuana industry rather than inside.
At our first lunch, more than three years ago, I wanted to know about his strategy and expansion plans for a feature I was writing in the magazine. At that time, he was already operating several successful retail locations. Halfway through the meal, we started talking about my background as the founder and owner of Topics Entertainment, a $50 million consumer software company. When I described how companies like Costco, Best Buy, Amazon and Target handled vendor meetings, new product submissions and buying procedures, he took out a notebook and started writing. Our conversation immediately changed directions 180 degrees. Instead of me asking questions about his plans for expansion, he turned it around and spent another hour asking about my experiences selling to big, established retailers. He seemed keenly interested in knowing how they set up their buying guidelines (I eventually sent him a copy of an old Best Buy vendor agreement), what they did to ensure that buyers were not taking gratuities and gifts from vendors (something that would get you fired from a major retailer in a New York minute) and their process for constantly evaluating vendors and new products. It was an interesting experience for me because this business owner was more interested in learning about the buying practices of major retailers than blabbing on about his deep knowledge of marijuana strains or bragging about his goal of becoming a marijuana industry millionaire.
Here are some of the points I made to him about how big retailers operate:
– Buyers are absolutely forbidden to take any gratuities or gifts from vendors. Buyers can be fired for violating the policy, and vendors will be dropped as a supplier if they’re caught giving gifts.
– Vendors are also forbidden from giving gifts to store employees or contractors.
– Buyers are required to take regular meetings to evaluate new products, and purchasing is always based on the best product at the best price for the store’s customers, as opposed to “buying from my buddy.”
– All vendors must have product liability insurance and name the retailer as “also insured” with at least $1 million in coverage.
– Vendors are required to acknowledge in writing that they will never undersell the retailer to a competitor.
– Vendors are required to participate in marketing programs and actively support the retailer.
These are just a few of the rules and requirements that big retailers mandate for vendors. They’re mostly aimed at making sure buyers are not unduly influenced in their decisions and designed to protect the retail store from conflicts of interest.
Most highly successful entrepreneurs learn from others and understand that success comes from building on the experiences of others in an evolutionary way rather than a revolutionary one. In my experience, this concept is easily forgotten in the rush mentality of the cannabis industry.