Cannabis Business Models: Is Asset Lite, Profit Heavy?
“Winner winner, chicken dinner” Charlie Sheen
An ‘Asset-Light’ business model is the cannabis and hemp beverage flavour of the year.
Capital is expensive and scarce; assets take time to stand up and are often inflexible and; not every company is skilled at production, logistics etc.
I totally get it and often endorse this strategy for start-ups and new market entry.
However, the reality is that there is no ‘one size fits all’ business model in most sectors, including cannabis and hemp.
And, an AL strategy is not a slam dunk approach.
It entails a mission critical reliance on fickle/unreliable partners; comes with potentially higher OpEx and; frequently sees management and quality issues. Many AL believers also (blithely) assume they will create powerful, portable brands and IP.
Fact is, AL shouldn’t necessarily mean asset zero.
Owning assets has its virtues: they bolster the balance sheet, enable more margin capture, and provide more control over the supply chain and quality.
Ultimately, having the ‘right’ assets is the best path to long term business and financial success.
The challenge remains: how do you fund these assets and leverage them into cash flow, profit, and competitive advantage?
Consider Chick-fil-A as a case study.
To be honest, I don’t patronize this chain, however, I know a great business model when I see one.
Chick-fil-A owns most of their assets and continually invests in them:
➕ A strong brand.
➕ Appealing recipes.
➕ Buildings, land & practices.
Assets, alone, are insufficient for success. Chick-fil-A supercharges them with powerful operational enablers such as staff coaching & training; rigorous operator & location selection and; a relentless focus on profitability.
Chick-fil-A makes money by…
1. Collecting a 15% royalty fee off gross profit.
2. Leasing the building to the operator.
3. Taking 50% of the net profits.
The result…
A profit and valuation flywheel that creates barriers to entry and sustainable competitive advantage
The payoff…
Chick-fil-A is more profitable per location than McDonalds, Starbucks and Subway, combined. Average unit volume is up to 4x greater than their competitors. The firm continues to be among the top 3 fast food restaurants in terms of sales.
Imagine what the results would be if the company was open for business on Sunday and didn’t take some unpopular social positions
I know Chick-fil-A’s model is not a ‘cut n paste’ to every cannabis and hemp firm. But the strategic implications of their success are clear:
▶️ Shun dogma and conventional wisdom. Think critically
▶️ Invest in your secret sauce & enabling capabilities
▶️ Be authentic, execute and persist
Call me. I help leadership teams solve difficult strategic, cost & organizational problems and capitalize on growth opportunities.
#hemp #ChickfilA #strategy #assetlight #capital