Driving Scale in Cannabis the Silicon Valley Way

In today’s CA cannabis market everyone is scaling up as fast as possible. Licenses are being acquired, grows are being built out, manufacturing and distribution are being ramped up. Virtually every cannabis company is raising capital to pursue the opportunity and become the market leader.

In fact, there are several races going on. There are the large, vertically integrated companies trying to get really big (e.g. Cannacraft, Indus, Grupo Flor, Canndescent, Flowcana). Then there are a number of vertical markets where companies are battling for market share in their specific category: Distribution, Edibles, Craft, Carts and everything else for that matter.

Finally, there is a Dispensary brand battle beginning to take shape with MedMen a clear “hype” leader but many others with similar plans in their slip stream. Most of these companies have and will continue to raise capital to pursue an organic scale strategy. Of course then there is the in-organic growth strategy being waged from Canada where the public stock is being leveraged by companies trying to buy scale (e.g Cannex, CannaRoyalty and Nutritional High). The prize is big; history shows that being one of the top 3 in each category can lead to a very large exits – #4 and below – not as clear.

So what can Cannabis companies do to achieve scale and compete? For the vast majority of companies coming out of a cottage cannabis industry, it means shifting your mentality and take a page from the Silicon Valley playbook. In the valley, the very first thing entrepreneurs do, often before they ship a product, is to build out a Board of Directors. Board Directors provide guidance, expertise, and knowledge of the issue you face, and most importantly, boards open doors.

Simultaneously Silicon Valley entrepreneurs pursue a rock star C-Suite and give them equity ownership to join the company and execute the founders vision. They assemble a top-notch bench of legal and financial experts. This highly valuable collective of board, management, and legal professionals can not only introduce you to capital sources but can also provide those same capital sources the comfort that it’s OK to invest in cannabis. After all, billions of dollars of wealth has been created in Silicon Valley, and a lot of it is sitting in the pockets of the people that are entering dispensaries and buying vapes and edibles.

But in Cannabis there is a different model. Most cannabis companies we speak with have one or two owners who own all the equity and certainly don’t have a Board of Directors or anything that resembles a corporate infrastructure. In the Valley, the scale starts with attracting great people and giving them equity. In cannabis its start with a senseless debate over who grows the best weed.

There is still ample time to compete for a leadership position in CA as we’re only in the first inning. The tastiest flower, cleanest oil or the most savory baked good rarely wins the battle for scale. Time to think about the game differently.

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