The Danger of Cannabis Hubris
Take everyone with a grain of salt
Benzinga, a premier cannabis conference just wrapped up. In attendance were a familiar cannabis tribe, I’ll call the Cheerleaders. They can be loosely defined as publicity-seeking cannabis entrepreneurs, angel investors and C-suite narcissists. Cheerleaders are easy to spot and persuasive communicators. Many boast solid CVs and investing track records.
Their views and experiences, however, should be taken with a grain of salt by those looking for investment advice, as well as operational best practices. Buying into the hype can lead operators and investors into making stupid financial and strategic decisions - and blowing up their firms.
Most Cheerleaders attribute their success to genius while discounting ‘behind the scenes’ lobbying, financial engineering and plain dumb luck. They regularly worship at the altar of great entrepreneurs like Elon Musk but ignore the likes of Dan Bilzerian and Adam Neumann. You will often see Cheerleaders proclaim a cannabis future made up of unicorns, social justice and rainbows. Often driven by a large ego and an early win, Cheerleaders will discount the caution of others, and will be dismissive of good corporate governance and detracting viewpoints.
The Cheerleader’s combination of risk blindness and a lack of inhibition often triggers a negative feedback loop. Employees and the market tend to kowtow to Cheerleaders to share in their power and success. Not surprisingly, Cheerleaders heed these false signals, which further inflates their confidence and leads them to aggrandize even more resources and capital. Unbridled growth becomes their mantra.
The issue is that successful and supremely confident people are less apt to listen to others. Inevitably, risks are ignored and market blind spots emerge. However, we know that the party eventually comes to an end. Industries ultimately revert to their mean level of profitability and high flying leaders naturally begin to strike out. We saw this in Canada and it will soon happen in the U.S. ( I won’t name names so please don’t ask).
In fairness, being charmed by a Cheerleader is rooted in the human condition and is therefore unavoidable. And optimists are prone to embrace successful entrepreneurs, seeing a single win as evidence of a proven track record (it is not).
We can mitigate the natural tendency towards hubris in firms by ensuring cannabis leaders listen to, and balance, different stakeholders. Some steps to achieve this include:
1. Creating Board and executive-level risk management & governance mechanisms to ensure proper oversight and curb excessive executive power;
2. Choosing an external ‘Devil’s Advocate’ to challenge major decisions and assumptions;
3. Instituting management practices that foster debate and critical thinking e.g., anonymous voting on major decisions.
#risk #strategy #decisionmaking #hubris #performance