Why do some cannabis companies screw up?

Blame your brain

"There are three kinds of lies: lies, damned lies, and statistics."
  Benjamin Disraeli, British Prime Minister (1868, 1874-1880)

The psychology of data - or how humans see, understand, and communicate data - is a root cause behind some of the biggest cannabis business failures. Simply put, bad investment, branding and operating decisions are regularly made based on faulty analysis, data fallacies and the subconscious bias of executives.  

A wealth of science tells us that all humans often misinterpret information and act irrationally, as individuals and within groups.  We just can’t help it.  

In my work with 140+ cannabis companies around the world, I have witnessed six common psychological and analytical shortcomings:

1. False Causality - This fallacy wrongly assumes that one event causes another (i.e. there is a high correlation between events ). For example, if cannabis brand A’s market share is number 1 and it happens to have the widest distribution it must mean that retail access is driving brand performance. Finding a high level of correlation can happen simply by chance, and not be related. 

2. Overfitting – This data error occurs when a financial or statistical model is tweaked to come up with a desired result, which does not reflect the general trend.   For example, outlying yield and potency data is often excluded when estimating maximum flower production.

3. McNamara’s Fallacy – Named after the former US Defense Secretary, this fallacy is rife in complex environments. Cannabis managers will over-emphasize certain metrics (e.g., growing cost) and lose sight of the bigger picture of what actually drives business performance. 

4. Sampling Bias – Sampling bias occurs when important conclusions are drawn from a limited set of data of the population you are trying to understand. Also called cherry picking, this bias is very common when researching the needs of cannabis consumers or reporting financial performance.

5. Over simplification –  Managers will stop at a superficial analysis when it leads to a desirable conclusion.  Mexico is a good example of a seemingly appealing cannabis market (e.g., large population, major cultivator) that is actually less attractive upon closer examination (e.g., a small number of users, powerful illicit players).

6. Groupthink – The wish for individuals to coalesce around a consensus, which overrides their common-sense desire to present alternatives, critique a position, or express an unpopular opinion. Groupthink is prevalent in weed firms with strong, charismatic leaders.

Knowing that psychological traps exist is step one.  They can be mitigated by:

1. Designating a ‘devil’s advocate’ to provide contrasting views and analysis;

2. Widen decision making to include more internal & external stakeholders;

3. Employ different analytical and decision-making techniques (mine were pioneered by the CIA).

#decisionmaking #performance #strategy #psychology #bias