THE EXCITEMENT It isn’t often that a complete
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Posted On: 07/01/2020 6:20:11 PM
THE EXCITEMENT
It isn’t often that a completely new business category opens up. But, when it does, it almost always begins and ends in the same way. Take the dotcom bubble as an example. In the late 1990s, U.S. technology stocks soared as investors drove up stock equity valuations of internet-based companies. Companies merged, were bought up, merged again, and were again bought up. By 2000 the bubble began to burst, leaving investors’ pockets empty from investing in “can’t fail” new technologies. I invested during those dotcom days, but refrained from investing too heavily because of fear of failing, and losing everything. In hindsight, I should have invested more.
The green rush gained popularity around 2012 when cannabis became recreationally legal in several U.S. states. Since 2016, some of the largest and most popular marijuana stocks have delivered gains upwards of 2,000%, 3,000%, and even north of 7,000%. And, while it’s true that many of these numbers continue to rise, the overall allure of investing in cannabis has begun to take a sharp, downward turn. And for good reason.
As cannabis’ legality has grown across the U.S., cannabis businesses have fought to be the first into new markets, often opening multiple retail stores in a previously untested market. However, as sales and company culture fail to translate into these new geographies, cannabis companies often find themselves upside down on valuations and sliding down a slippery slope of survival. This is nothing new here. New industries all go through a growing curve, and most of the early leaders simply do not survive.
As many of the largest cannabis companies go under, investors begin shying away and begin to look at cannabis investments based purely on current valuation and growth strategy. Short term buying and flipping typically becomes the norm of the day.
THE MISTAKES
Amidst the madness of the green rush, many cannabis companies’ exaggerated valuations and swift, large-scale expansions placed many of them in a sticky situation, some going as far as bankruptcy. So one must ask why in an industry with such potential, and a newly-earned “essential” status, are so many canna-giants facing extinction?
The biggest mistake many companies made was scaling at an unsustainable rate. In business, it’s important to manage cash flow, inventory and sales channels and only expand when it makes financial sense. However, the lure of the cannabis industry put many business owners in a dangerous situation as they expanded far beyond their means. Hence, the old adage “built to last” comes to mind. The fact is, many of these cannabis companies were only “built to flip.” This is a dangerous model, and it has begun to fall apart, leaving investors high, dry, and often nervous about making future investments in this industry.
In my opinion, this is why Doctor Dalton commented that sometimes being last means one is first.
Another major mistake many cannabusiness made is a general failure to explore the new markets they were entering. Because cannabis is state-regulated, businesses must explore all regulations and opportunities across the new geography. But many companies simply expanded into whatever market presented itself. Typically, a business does not expand into new locations without proper research. However, cannabusinesses often added multiple new locations in new states as soon as they became “legal,” causing a detrimental pattern of over-expansion. This pattern was simply not sustainable.
Once again, I see parallels to the dotcom era.
THE FUTURE
As the market begins to settle, business owners and investors begin to realize the mistakes of moving too quickly. Keep in mind, there is no such thing as a “foolproof” investment, and cannabis is no exception. Companies that grew too quickly are beginning to fall behind while the ones built on a solid foundation of strong business principles are staying steady in the race to the top.
Everyone should understand that this is still an extraordinary time for cannabis. Beyond being deemed essential, the plant is now legal either medically or recreationally in the majority of the U.S.
Companies succeeding in today’s environment are generally taking a slower, more focused approach to growth. And, while the “green rush” might be slowing, the overall cannabis vertical is making its biggest strides ever --- some things just take time.
For those invested in Univec and its related companies, take heart, it does appear Dalton took the time to build a solid foundation. All in my opinion. So take it with a grain of salt.
Kgem
It isn’t often that a completely new business category opens up. But, when it does, it almost always begins and ends in the same way. Take the dotcom bubble as an example. In the late 1990s, U.S. technology stocks soared as investors drove up stock equity valuations of internet-based companies. Companies merged, were bought up, merged again, and were again bought up. By 2000 the bubble began to burst, leaving investors’ pockets empty from investing in “can’t fail” new technologies. I invested during those dotcom days, but refrained from investing too heavily because of fear of failing, and losing everything. In hindsight, I should have invested more.
The green rush gained popularity around 2012 when cannabis became recreationally legal in several U.S. states. Since 2016, some of the largest and most popular marijuana stocks have delivered gains upwards of 2,000%, 3,000%, and even north of 7,000%. And, while it’s true that many of these numbers continue to rise, the overall allure of investing in cannabis has begun to take a sharp, downward turn. And for good reason.
As cannabis’ legality has grown across the U.S., cannabis businesses have fought to be the first into new markets, often opening multiple retail stores in a previously untested market. However, as sales and company culture fail to translate into these new geographies, cannabis companies often find themselves upside down on valuations and sliding down a slippery slope of survival. This is nothing new here. New industries all go through a growing curve, and most of the early leaders simply do not survive.
As many of the largest cannabis companies go under, investors begin shying away and begin to look at cannabis investments based purely on current valuation and growth strategy. Short term buying and flipping typically becomes the norm of the day.
THE MISTAKES
Amidst the madness of the green rush, many cannabis companies’ exaggerated valuations and swift, large-scale expansions placed many of them in a sticky situation, some going as far as bankruptcy. So one must ask why in an industry with such potential, and a newly-earned “essential” status, are so many canna-giants facing extinction?
The biggest mistake many companies made was scaling at an unsustainable rate. In business, it’s important to manage cash flow, inventory and sales channels and only expand when it makes financial sense. However, the lure of the cannabis industry put many business owners in a dangerous situation as they expanded far beyond their means. Hence, the old adage “built to last” comes to mind. The fact is, many of these cannabis companies were only “built to flip.” This is a dangerous model, and it has begun to fall apart, leaving investors high, dry, and often nervous about making future investments in this industry.
In my opinion, this is why Doctor Dalton commented that sometimes being last means one is first.
Another major mistake many cannabusiness made is a general failure to explore the new markets they were entering. Because cannabis is state-regulated, businesses must explore all regulations and opportunities across the new geography. But many companies simply expanded into whatever market presented itself. Typically, a business does not expand into new locations without proper research. However, cannabusinesses often added multiple new locations in new states as soon as they became “legal,” causing a detrimental pattern of over-expansion. This pattern was simply not sustainable.
Once again, I see parallels to the dotcom era.
THE FUTURE
As the market begins to settle, business owners and investors begin to realize the mistakes of moving too quickly. Keep in mind, there is no such thing as a “foolproof” investment, and cannabis is no exception. Companies that grew too quickly are beginning to fall behind while the ones built on a solid foundation of strong business principles are staying steady in the race to the top.
Everyone should understand that this is still an extraordinary time for cannabis. Beyond being deemed essential, the plant is now legal either medically or recreationally in the majority of the U.S.
Companies succeeding in today’s environment are generally taking a slower, more focused approach to growth. And, while the “green rush” might be slowing, the overall cannabis vertical is making its biggest strides ever --- some things just take time.
For those invested in Univec and its related companies, take heart, it does appear Dalton took the time to build a solid foundation. All in my opinion. So take it with a grain of salt.
Kgem
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