In Washington and Colorado, the legal, adult-use marijuana industry is now about five years old, and Oregon and Alaska aren’t far behind. It’s been a remarkable time and a lot has been learned. There have been some good stories, but also plenty of bad ones. If I were to weigh the good against the bad, and compare expectations prior to legalization with the current realities, I’d say the majority of participants (at least on the West Coast) have come to understand that the easy “green rush” riches many thought they’d make have been largely unrealized. To be fair, there are business people making big profits in this industry and right now, most are in retail.
However, if I were to point to one thing that seems to be a common thread among successful businesses, it’s that they tend to focus on one core competency or business model.
If you look at the rest of the business world, focus is often one of the key indicators of success. For example, McDonald’s doesn’t do pizza, and Pizza Hut doesn’t do burgers. Boeing doesn’t do piston planes or business jets, and Cessna doesn’t do big, commercial airliners. Costco doesn’t have a speed line or sell single candy bars, and 7-Eleven avoids gigantic, 50-roll packs of toilet paper. In other words, if you look at America’s most successful companies, they stay laser-focused on what they’re good at. We’ve editorialized on this subject many times in Marijuana Venture, but it often seems to go in one ear and out the other. Cultivators, especially, seem to get fixated on creating dozens of different products when in all likelihood, they should just stay focused on getting good (read: really efficient) at growing bud. Another way of thinking about this would be to imagine the typical apple orchardist. My guess is that if you talked to an apple orchardist and suggested they branch out by creating apple sauce, apple wine, hard cider and any number of other products, you’d get a response that went something like this: “Our core competency is growing apples, and we’re really good at it. We have no experience or knowledge of selling directly to retailers, and we certainly don’t know how to make apple sauce or cider. We leave that to the folks we sell wholesale to, who understand and focus on that end of the business.”
For more than 15 years, I ran a CD-ROM publishing company that did $50 million in annual sales. It was very profitable and ranked No. 1 in the non-gaming, reference/education category. We sold to Costco, Best Buy, Target, Amazon and many other big U.S. and Canadian retailers. Our brands included Playboy, National Geographic, Scholastic, PBS and Rand McNally. One of the things I learned (sometimes the hard way) was that as good as we were in reference and education CD-ROM publishing, we were equally bad when it came to making books, distributing non-CD-ROM products and expanding into areas like sporting goods and food. In other words, when we stuck to our core business expertise, we excelled — and even beat both Microsoft and Rosetta Stone in the language CD-ROM business. When we tried to do things outside our area of expertise, we usually failed because others were better at it than us.
In a recent conversation with the CEO of one of the big Northwest cannabis retailers, he told me he has no desire to enter the cultivation side of the business. His focus is retail, and he explained that growing cannabis was not something he had any desire to do, because it would distract him and his company from becoming the best retail operator in the industry. My guess is that he will be proven correct in the long run.
One final comment: If you’re still not clear how this works, look no further than Washington, D.C. It’s obvious from the mess in our capital that the real estate developer best known for brassy high-rise buildings, unpaid bills, bankruptcies and tacky consumer products should stick with his core competency!