Is a DeepSeek-like Disruption Coming for Cannabis?
“If we want things to stay as they are, things will have to change.” Giuseppe di Lampedusa in “The Leopard”
Right on cue, the launch of DeepSeek’s new AI model and the subsequent tech industry meltdown has plenty of cannabis talking heads warning us that the same fate befalls our industry.
Yet another thing to worry about, lads?
Some background
DeepSeek is a Chinese AI start up that just introduced a new way to develop Large Language Models. LLMs are a building block of AI applications. Their technology (appears to) shatter conventional wisdom around the computing power and cost needed to develop AI.
Deep Seek's performance is equal to OpenAI but can be delivered much more cheaply (e.g., uses less power) and quickly plus it is opensource. This is textbook disruption. A new entrant discovers a faster, cheaper way to solve a big in this case US$100B problem.
The result
Big Tech disbelief and carnage in the equity markets. AI leader NVIDIA saw its market value fall by ~US$600B while the shares of AI-sensitive industries like natural-gas producers, pipeline operators, miners, semiconductors and electricity generators have shed over $US1T in value.
Me worry?
This cannabis expert is not worried about disruption in our space, and neither should you. Here’s why:
Disruption is much more common in ‘winner take all’ sectors (e.g., tech, fashion) that feature big, complacent players. Cannabis has the opposite industry structure and dynamism.
A patchwork of restrictive cannabis regulations will slow down the pace and extent of industry change.
Disruption could take place in parts of the value chain like genetics, production (e.g., biosynthesis) and canna-tech. However, these areas feature significant inertia around speed of adoption, technical challenges, and the required CapEx. Major advances will happen but will unfold over years, not months.
Regulatory change could be a disruptor to US cannabis, but that likely won’t appear as a bolt from the blue. Some reforms could end up being lunch bag letdown For example, Rescheduling may have a muted impact on the large MSOs who have not been paying their 280E taxes.
The guru of disruption research, Clayton Christenson, is also quite measured. He said “Disruption is a process, not an event, and innovation can only be disruptive relative to something else”
Not fearing disruption doesn’t mean you should not run scared or pay attention to all threats.
Most corporate underperformance still comes down to the basics like strategic myopia, capital crunches and poor execution on the operations and brand fundamentals. The opposite thesis will also be true.
Let’s get back to work.
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