For the ‘start small’ cannabis crowd

It’s fashionable to crap all over large Canadian LPs and American MSOs who went all in on equity raises, scale and growth and then delivered poor business results. That may also be unfair.

To realistically judge their strategy, you need to consider the alternative approach which I will loosely define as ‘start small’.  Followers of this strategy built small grows, focused on ‘craft’ quality and limited marketing & organizational scale out.   

Is ‘start small’ the right way to go?  Maybe, but we should be mindful of the drawbacks and risks, such as:

·       Its tough to scale and build capability.  When you can’t rely on size, vital but scare inputs like talent, shelf space and capital are difficult to come by;

·       Making big-time profit is tough in an operating environment facing relentless margin compression, with little product differentiation and no scale economies;

·       There are fewer shareholder exits. Unless the business is special you won’t be appealing to an acquirer or to go public.

Ultimately, the right choice is dependent on your financial goals and view of industry dynamics.  As shown in the comparable beverage alcohol industries, small is not always beautiful. Why should cannabis be any different?

#LPs #MSOs #growth #scale #funding #strategy #canada #US #risks