Cannabis is one of the hottest industries right now for job seekers, entrepreneurs, and investors. In this post, I look back at lessons I’ve learned from the last 5 years I’ve spent as an executive at one of the leading cannabis companies, Eaze.
Back in 2014, when I first started looking at cannabis as an industry, it was incredibly nascent. California, now the largest market by far, had only a loosely regulated market for “medical marijuana”. Recreational sales in the state didn’t start until 2018, four years later. Total US cannabis sales in 2014 totaled less than $5 billion. By 2023, the US cannabis market is expected to exceed $30 billion, a 6x increase in 8 years.
You can see why cannabis is the hottest area right now for investors, entrepreneurs, and employees. Even though cannabis companies are not seeing the red hot valuations they were six months ago, I still have more and more people every day asking me how they can get into the industry. The Sacramento Bee just reported a 1,242% spike in cannabis job posting in California 😳
If you are one of those people looking to get into cannabis or are just curious about the industry, here are 5 lessons I’ve learned from my 5 years in cannabis.
Lesson 1: The cannabis industry is a fast-growing adolescent 👼🏼
Although the industry is already massive in some sense, it is also in many ways very immature. You know that gangly 13-year-old that just hit a massive growth spurt? They are suddenly all arms and legs and don’t quite know how to use their new size. Sometimes they are surprisingly strong, sometimes they are awkward and klutzy, and sometimes they just shut down and cry for no reason. That’s cannabis in 2019.
Sometimes they are surprisingly strong, sometimes they are awkward and klutzy, and sometimes they just shut down and cry for no reason. That’s cannabis in 2019.
In just a few short years, the industry will have grown comfortable with its size and will have rapidly matured into a productive member of society. But for now, the industry faces several issues that point to its lack of maturity. Let’s just look at a few.
This is far and away the biggest issue facing the cannabis industry today. Because of the Federal status of cannabis and the lack of clarity on the rules around banking, payments, and so on, many basic services that most businesses take for granted just don’t exist for cannabis companies. Even companies like Eaze that provide technology and services to the cannabis industry, but don’t directly touch the plant, face enormous challenges with banking, payments, and so on.
Want to accept payments via Square, Stripe, or almost any other payment system for cannabis? Sorry charlie, no can do.
No problem you say, you’ll just accept cash and deposit it at your local Wells Fargo, or whatever bank you use, right? You’d better keep two or three backup accounts warm because you will lose access to your banking. Not to mention the pain of managing all that cash.
Almost anything you can think of that involves the flow of money is vastly more complicated for a cannabis company, creating significant mental, operational, and financial overhead that is a huge headwind for the industry. On the bright side, there is a lot of work being done to address these issues at the state and federal level through legislation, cannabis banks, and clarifying the rule. But for now, this remains a significant issue.
In most industries, distribution is a very specialized part of the supply chain. There are typically several companies that provide excellent distribution services at scale, providing an efficient way for vendors to deliver products to the point of purchase quickly and cheaply. As of yet, there is not a single dominant, effective distribution channel or company for cannabis.
There are a few reasons why this is the case. First, cannabis cannot cross state lines. As a result, the entire supply chain, from growing to processing, testing, packaging, and, yes, distribution, needs to be recreated in every state where cannabis is sold. Second, there are a huge number of brands, with new ones coming online every day, and the supply chain across the board is immature and, therefore, erratic. Even the best distribution companies are only as good as the supply chain of the vendors they distribute.
As the industry continues to consolidate, gain experience, and attract top talent and expertise from other industries, distribution will continue to improve until it is on par with other industries. Until then, distribution is a weak point in the cannabis supply chain.
Five years ago, the average person working in cannabis was a dude from Santa Cruz driving around with hefty bags of weed in the back of his truck, exchanging them for duffel bags of cash. I’m not kidding, this was standard operating procedure as recently as 2014. Now you have a massive number of professionals from other industries who bring their years of expertise –but they are brand new to cannabis.
You have very few people with years of cannabis experience that also have the skills needed to succeed in the professional industry that cannabis is as we approach 2020. As time goes on, this will become less of an issue, as cannabis continues to attract top talent, and these people gain experience in the industry.
Five years ago, the average person working in cannabis was a dude from Santa Cruz driving around with hefty bags of weed in the back of his truck, exchanging them for duffel bags of cash.
The good news is that there continues to be significant progress with all of these issues, and others, and over the next 10 to 20 years I’m confident that cannabis will become a mature industry, able to go toe to toe with any other industry. I just hope that it maintains the values that make it special, which we’ll discuss next.
Lesson 2: The industry is mission-driven 🙏🏼
Most people in cannabis are in the industry because they truly believe in the power of the plant. Ask anyone working in the industry about their relationship with the plant, and you’ll get a unique and powerful story of what drives them to work so hard. I’ve never worked in an industry with so much passion and so many great stories motivating people to move the industry forward.
Some are in it for very personal reasons — the plant helped them overcome their opioid addiction, or they saw first hand how much it helped a grandparent deal with the devastating effects of cancer.
Some key in on both the freedom and the communal aspect of the plant. Whether they are deadheads that want to spread the gospel of love through music and cannabis or believe that the plant has mystical properties that will help unite the world and help us to escape from oppressive conformity, they truly believe that advancing the cannabis industry will help make the world a better place.
Others, like myself, are more passionate about the social justice and political aspect of legalization, which we’ll turn to next.
Lesson 3: The injustices of the past must be addressed ⚖️
The statistics are staggering. According to the ACLU’s 2013 report, The War on Marijuana in Black and White, “Marijuana use is roughly equal among Blacks and Whites, yet Blacks are 3.73 times as likely to be arrested for marijuana possession.” This is just one of many statistics that encapsulates the massive injustice that oppressed minorities for decades and still, although to a lesser degree, does so today. Watch Ava DuVernay’s excellent documentary The 13th on Netflix for a hard look at the larger problem of excessive criminalization of African Americans.
Marijuana use is roughly equal among Blacks and Whites, yet Blacks are 3.73 times as likely to be arrested for marijuana possession.
Rates of arrest and imprisonment among minorities is one massive issue, but so is underrepresentation among owners, investors, and even employees in the industry. The good news is that, as cannabis legalization spreads across the US, there is growing momentum to address the injustices of the past and present through Social Equity programs.
What is Social Equity? The City of Los Angeles says it well when it states that the goal of their Social Equity Program is “to promote equitable ownership and employment opportunities in the cannabis industry in order to decrease disparities in life outcomes for marginalized communities, and to address the disproportionate impacts of the War on Drugs in those communities.”
Many cannabis companies and non-profits are also doing their part to address these issues. While I was at Eaze we created a number of partnerships and initiatives to help address both the historical injustice and the underrepresentation. I’ll highlight two of my favorites.
Code for America
Earlier this year, Eaze partnered with a great organization called Code for America. This organization is pretty genius — they created technology that helps automatically expunge the records of people who have drug convictions still on their record even though the laws have changed. Clearing someone’s record can have a significant positive impact on their opportunities for jobs, housing, and education. They’ve already helped hundreds of thousands of people, but there are millions of people left for them to help. If you’re interested in helping people impacted by the historical injustices that I’ve been talking about, this would be a great organization to support.
Eaze’s most recent initiative is Momentum, “a business accelerator designed to support and empower underrepresented founders. Momentum’s goal is to help build a diverse industry that addresses the War on Drugs and support small businesses in becoming more profitable and sustainable.”
10 underrepresented entrepreneurs each get a $50,000 grant (no strings attached), 10 weeks with an amazing group of mentors, and access to some of the top cannabis investors. What a great way to increase diversity in the cannabis industry. Speaking of diversity, let’s take a closer look at that now.
Lesson 4: There is incredible diversity 🌈
As you just read, there is a significant historical (and current) problem with minorities and criminalization for cannabis crimes. In addition, the industry is still largely owned and operated by white men. However, there is already a significant amount of diversity in the industry and it is growing. Let’s take a brief look at the diversity in people, companies, products, and missions.
The people I’ve worked with in cannabis come from all sorts of backgrounds and the diversity has only increased over time. Most of the players five years ago were the prototypical emerald triangle slightly hippie white dude. Nowadays I meet people who come from all sorts of backgrounds, from farmers to bankers, from East Coast money to first-generation immigrants, from Straight White Men to Queer African American Women, and everyone in between. As mentioned above, there is still a huge need for more diversity, but compared to five years ago, the industry is a double rainbow.
Because the regulated industry is so early in its history, no one quite knows what model will succeed in the industry, and so you see a lot of variety and experimentation.
There are small scale mom and pop operations with a nice business making great products. There are classic tech companies coming out of YC focused 100% on cannabs. There are massive, multi-billion dollar operations funded by traditional vice companies.
Some companies are craft producers that focus on a single line of products. Others are massive, multi-state operators that produce a variety of products on a massive scale.
Over time, you’ll continue to see the recent consolidation continue, but there will still be a lot of opportunity for experimentation in such a rapidly growing and evolving industry.
When I was first introduced to cannabis decades ago, we called it weed, and it meant one thing — raw flower. You could pack it in a pipe, rip it in a bong, or roll it in a joint. That’s about it. Today the variety of products is just exploding. You can eat, drink, smoke, vape, rub, apply, drop, or chew cannabis. You can consume any combination of THC, CBD, CBN, and more. Want to sleep, work out, get creative, socialize, or recover? Cannabis has you covered. Looking for a great $15 vape? Check. Want to spend $100+ on an artisan eighth? No problem. If you can imagine it, someone has probably produced it. And I haven’t even mentioned pet products!
Recall from my 2nd lesson that the industry is primarily mission-driven. The amazing thing is that every person and company has its own story that drives their particular focus. Companies like Jetty Extracts focus on the medical benefits of the plant. Bloom Farms is helping to solve hunger. Besito has a strong social justice mission. And so on.
As you can see, there is quite a bit of diversity in the cannabis industry, and the diversity is growing over time. I’m optimistic that cannabis will be a leader in diversity if these trends continue.
The first 4 lessons have painted a pretty optimistic picture of the future of the cannabis industry, if not the present. Let’s look at one last lesson that is also the biggest challenge to the present and future of the legal, regulated cannabis industry.
Lesson 5: The black market still dominates 👮🏼♀️
Although I’m not a fan of the term, black market is how most people refer to the illegal or unregulated market. Let’s take California, the largest cannabis market, as a prototypical example. Adult Use aka recreational (as opposed to medical) cannabis has been legal since January 1st, 2018. This year, 2019, is the second full year of legal, regulated, recreational cannabis in the state. Two years is plenty long enough to transition most of the cannabis sales in the state to legal sales and enforce against those still selling illegally in the black market right?
Wrong! According to The Motley Fool, almost three-quarters of all marijuana purchased in California this year will be of the illicit variety. That’s right — in the second full year of “legal” sales, only one third of sales are through legal, safe, tested, taxed, age-limited (21+) and regulated channels. The vast majority of Californians still obtain their weed through illegal channels — this means dangerous, untested, untaxed, sold to kids, and completely unregulated. Astonishing.
There are three reasons that drive this staggering statistic. Let’s look quickly at each.
The number one reason that so many people continue to purchase through the black market is the onerous taxes placed on legal cannabis sales. The San Francisco Chronicle points out that taxes are [as high as 45%] when buying through the legal market. Who would pay 50% more for essentially the same product when it is easily available tax-free? In a sense, you can’t really blame the consumer here. As much as I believe in the value added by the regulated market, it is hard to justify the 50% price increase. Tax rates need to come down to move consumers to the regulated market.
Lack of enforcement
Just as you can’t blame consumers for staying in the black market, it is hard to blame the producers and suppliers as well. The regulations are complex, confusing, and often self-contradictory, not to mention expensive to comply with. And what’s the downside of not complying and continuing to operating outside of the legal framework? Usually nothing.
California is stuck in a vicious cycle. A small legal market means low tax revenue. Low tax revenue means insufficient funds for enforcement. Lack of enforcement leads to a thriving black market. A thriving black market keeps the legal market small. The regulated market won’t thrive until there is enforcement against the black market.
Immature regulated market
The complex regulations in California and elsewhere hinders the growth of the legal, regulated industry. Legal cannabis businesses are competing with one leg and the opposite arm tied behind their back. And to make it more challenging, Roughly every six months a new set of regulations go into effect. With this constant change, there is no real understanding, from the regulators down to the regulated, what it means to comply with each new set of regulations.
Let’s just take the latest example — METRC. METRC is software used in multiple states to track cannabis from “seed to sale”. Essentially, for safety and other reasons, the idea is to track every bud from the plant it grew on to the consumer who ultimately consumes it. It is a great idea, but the rollout in California has been a complete cluster.
The METRC software is slow and arduous to use and lacks the APIs necessary to tie into existing software used all along the supply chain, creating huge duplication in work for everyone. Even worse, rather than rolling out the tracking starting with the seed and moving forward through the supply chain to the sale, METRC compliance is tied to the timing of individual licenses, leading to retailers being forced to track products that haven’t been tracked earlier in their lifecycle. This creates even more work that is 100% useless.
Remember, nobody in the black market has to even think about taxes, enforcement, or regulations. Supporting the legal market has so many benefits, from safer, tested products to reducing access to teenagers (hint: they all get it from the black market). I hope that we’ll soon cross over into a virtuous cycle of lower tax rates, more enforcement, and more sensible regulations, but for now, the black market is winning.
Bonus lesson: Cannabis is crazy, but mostly in a good way 🤪
I want to leave you with one last thought, especially for those considering jumping into the cannabis industry. My life has been quite a journey. Steve Martin once ran me over with a steamroller, I’ve worked in the studio with Will.I.Am, toured across the country with ten dudes in a van, started companies and sold them. But nothing has compared to the five years I’ve spent in cannabis. Yes, it is crazy, but it is the right kind of crazy. It is a lot of fun, you get to work with great people, and can be highly remunerative. If you like the right kind of crazy, jump on in, the water feels great.