The Wink in Weed: The Sock Puppet of Pot

By David Rheins

“We lose a little on every sale, but make it up in volume.” The famous failed business strategy harkens back to the heady dot.com days when star-struck venture capitalists backed wild-eyed technologists at crazy valuations, betting on low-revenue/no-revenue ventures to capture valuable “market share” in the emerging digital economy.

Back then the goal for tech startups was to ‘Go IPO’ – take their companies public through an initial stock offering. Fancy suits, slick decks in hand, young tech entrepreneurs made schmoozing the Angels and Venture Capitalists their priority. Real products and actual profits would come eventually; but building mind share was more important than market share, and so these dotcoms raised enormous amounts of capital, which they quickly invested on flashy Super Bowl ads, groovy offices and over-the-top industry parties.

Perhaps the best known example of this failed approach is Pets.com, an online pet store famous for its ubiquitous sock-puppet mascot.  Raising $300 million, the company spent lavishly on high profile marketing efforts in an effort to build excitement around its initial stock offering.  The stock debuted in February 2000 at $11 a share, peaked at $14, and then quickly sank to less than $1. The whole wild ride was over in less than one year. Three hundred employees lost their gigs, and as many millions evaporated when Pets.com folded in November 2000.

Amazon, Google, Facebook. For every internet success story, there were tens of thousands of failures, some spectacular in the enormity of their disaster.  Billions of dollars were created and evaporated in the mismanagement of once-huge brands like Netscape, MySpace, AltaVista, Excite and AOL. Just this week, Yahoo gave up the ghost and was sold to Verizon for less than $5B, a loss of more than $100 Billion in value from its once lofty portal peak.

In today’s Green Rush, thousands of companies are being created and hundreds of thousands of workers of weed have signed up for their piece of legal cannabis. This November, a handful of new fully-legal states are expected to come online, including the huge California and Nevada markets. Our $5.4 Billion legal market is expected to quadruple in the next 5 years.

So, are we in the process of creating another bubble? Is the high-flying Pot Boom on a path to suffer the same burst as its dotcom predecessor?  And if we are doomed to repeat our past failures, who will we point to as the Sock Puppet of Pot?

While there are sure to be some dramatic flops, some key differences between the two markets suggests that the Pets.com scenario is unlikely to be repeated in our budding marketplace. First, while the legal cannabis industry is the fastest growing segment of our economy, it is not for the most part being fueled by over-exuberant VCs.  While ArcView and a couple of other funds are playing a small role, for most cannabis entrepreneurs, capital remains expensive and hard to find. Federal Prohibition has made commercial credit from banks unavailable, and Venture Capital cautious, and as a result so-called Friends and Family and other Angels are funding this grass-roots revolution.

Second, there are no public markets to wildly inflate company valuations. Beyond the dubious OTC markets, Wall Street is not yet playing the weed game, and won’t until there is a change in federal scheduling or regulations.

Most importantly, the cannabis industry is creating real products and generating real revenues and profits.  While the world only needs one or two search engines, it can absorb hundreds of cannabis brands.  Consumer demand for legal cannabis in its many forms is strong, and getting stronger, driven by product innovation in new categories like Cannabis Health and Beauty Aids (CHABA), edibles and concentrates, not to mention the explosive growth predicted in medical cannabis and industrial hemp.

So don’t look for any Pot Puppet ads on the Super Bowl anytime soon. Pot is not pixels, and decades of prohibition have created enormous pent up demand. That is not to say that there will not be some spectacular losers. Competition is fierce, and getting more cut-throat, as wholesale and retail price per gram shrinks, and more well-funded entities enter the marketplace. Look for marketing budgets to significantly increase as the battle for brand awareness and loyalty take center stage in the next act of our grand experiment.

Making A Business Out Of Marijuana Isn’t Easy

OHIO: Running a marijuana business is more than a pipe dream, says Justin Breidenbach: It’s about taxes, banking, liability, supply and demand.

Breidenbach, an associate professor of accounting at Ohio Wesleyan University who has been studying the economics of pot for two years, concludes that there’s potential for big money to be made if Ohio legalizes pot on Nov. 3. But, he says, marijuana entrepreneurs might go through a minefield to get there.

“There are many misconceptions about how this industry operates,” Breidenbach said. “Many believe this is a new-age gold rush. While some companies are doing well, there are just as many that are struggling to keep their doors open. If Ohio is to legalize marijuana, it is important for people to understand how this industry will operate and navigate the many hurdles to stay afloat.”

Breidenbach visited growers, processors, shop owners and others in the marijuana business in Washington, one of four states plus the District of Columbia where marijuana is legal for both recreational and medicinal purposes. Some Washington businesses are losing money, even going under, in part because of federal tax-code provisions prohibiting tax deductions for expenses related to illegal products, which marijuana is under federal law.

 

New York’s Medical Marijuana Licenses Expected To Be Awarded By Friday

NEW YORK:  The New York Department of Health is expected to announce either Thursday or Friday which five companies it has selected to award licenses to grow medical marijuana under the Compassionate Care Act. This announcement, first reported by the Daily Freeman News of Kingston, New York, may come as a welcome, if long-awaited, surprise to the 43 companies that filed their applications for medical marijuana growing licenses nearly eight weeks ago. Many began their application prep several months before the licensing application even appeared online. The selection of the winning companies marks a significant step in bringing New York’s medical marijuana program closer to fruition.

The New York “green rush” began on April 27, when the health department posted the “Application to Become a Registered Organization” — which applicants complained consisted of four poorly marked PDFs. The application period was originally slated to remain open for a month, but when the paperwork proved too difficult to complete, the state extended the deadline by a week. Originally, hundreds of companies were expected to apply, but in the end only 43 filed applications.

The small number of state licenses and the promise of big profits have attracted big-money applicants, such as Fiorello Pharmaceuticals, spearheaded by former Bear Stearns executive Ari Hoffnung. Based on data from states like California and Colorado, which have also legalized medical marijuana, research and consulting firm GreenWave Advisors predicts medical marijuana sales in New York could exceed $240 million in the first year. The application fee began at $10,000, and the companies awarded licenses will have to pay an additional $200,000 — but the bulk of the multimillion-dollar licensing budget is for lobbyists, greenhouse architects, and construction of marijuana grow and production facilities. The application requires a detailed plan from “seed to sale,” mapping out everything from greenhouse equipment to transport of the finished product to dispensaries.

Q&A With WeedHire CEO David Bernstein

This week popular cannabis industry job board WeedHire.com released it’s Q4 2014 Jobs Report indicating the legalization of marijuana is creating new jobs and inspiring new economic activity. According to the report approximately 10,000 jobs in marijuana already exist in Colorado, and tousands more will be coming in the follow-on states of Washington, Oregon, & Alaska.

While unemployment has dropped dramatically in cities with legal cannabis (according to U.S. Bureau of Labor Statistics, the city of Denver’s unemployment rate was 4.2% through November 2014, down from 6.5% a year ago ), there remain real challenges to the sustainability of this growth.and these statistics demonstrate the industry is still very early in development. The lack of banking support as well as the delays in issuance of licenses and approvals at the state level is likely to also play a role in how fast these organizations can grow.

It is important to note however that industry analysts believe that approximately 10,000 jobs in marijuana already exist in Colorado. Thousands more will be coming in the follow-on states of Washington, Oregon, & Alaska.

MJ News Network had the opportunity to talk to WeedHire CEO David Bernstein about his Q4 Jobs Report, and his predictions for 2015.

Q: How does the cannabis industry jobs report compare to the nation at large?

A: The report extracts data from the website that users post nationwide, and globally.  Due to the vertical nature of the site, it’s about as definitive as you can get about the industry job trends

Q: What jobs within the cannabis industry are growing fastest?

A: 1) Dispensary Jobs, with 90% Growth
, 2) Medical Jobs –  with 70% Growth, 
3) Administrative Jobs – with 65% Growth, 
4) Sales Jobs – with 56% growth.

Q: What jobs will be in the highest demand for 2015?

Top 6 Jobs Functions Most in Demand  
1)  Administrative
,  2 ) Sales
, 3) Dispensaries
, 4) Medical
 5) Marketing, and
 6) Manufacturing/Grow/Edibles/Testing

“WeedHire is fortunate to have a unique seat at the table as legal marijuana evolves,” Bernstein told MJNN. “From our view, we can understand the needs/issues that business owners are working to address from a staffing perspective.  This also provides clarity as to the stages of development for the overall industry and each respective state as well.  For Job seekers we can see the interest levels and the rate of commitment to enter legal marijuana as a legitimate industry.  Weedhire will continue to share this information on an ongoing basis with the general public.”

California’s Green Rush, The Business Of Marijuana In The Golden State

CALIFORNIA:  The following 4 segments are from a KPIX 5 News in-depth look at the marijuana business in California since it became the first state to legalize the use of medical pot 17 years ago.

VIDEO: SEGMENT 1 (of 4):
In this segment host Veronica De La Cruz introduces a report by Joe Vazquez on the explosion in illegal marijuana grow operations and the environmental impact of those activities.

 

Marijuana’s Promise Of Profit Remains Elusive (For Now)

NEW YORK: Excitement surrounding medical marijuana led to a significant run-up in GW Pharmaceuticals‘ share price earlier this year, but based on the company’s recently announced quarterly and fiscal full-year earnings results, the promise of marijuana profit remains far off in the distance.

Planning for the future

That’s because GW Pharma has only one marketed marijuana derived therapy, Sativex, on the market, and Sativex, which is used to treat multiple sclerosis spasticity, has yet to win the FDA go-ahead for use in United States. As a result, sales of Sativex, which come primarily from European markets, total just $2 million in the quarter ending June and were small enough for the full fiscal year ending September that the company didn’t bother breaking them out in its quarterly earnings press release.

Instead, the company focused the bulk of its earnings report on the promising opportunity for its marijuana-based medicine across various indications and a slate of trials spanning cancer pain, epilepsy, schizophrenia, and even diabetes.

Those trials are all ongoing, so investors will need to rely on past trial data to make judgments on whether or not the market demand for GW Pharma’s medicine will justify the company’s $1.27 billion market cap.

Legal Marijuana A High For Licking County Manufacturer

OHIO:  Forget the California Gold Rush. It’s so mid-1800s.

Like a growing number of entrepreneurs nationwide, Andy Joseph knows that his business fortunes are tied, for better or worse, to what he describes as the “green rush.”

Business is booming at Joseph’s Licking County-based manufacturing company, Apeks.

Sales jumped from $750,000 in 2012 to $3.2 million in 2013. This year, Joseph expects revenue to approach $9 million.

Joseph started Apeks in 2001 after fine-tuning a process that extracts botanical oils using a setup that looks like a cross between a moonshiner’s still and Dr. Frankenstein’s workbench.

 

Weedhire.Com Sponsors MJBA Job Fair Seattle Saturday, September 27th

WASHINGTON: WeedHire, a premier jobs site for the legal marijuana industry, and the Marijuana Business Association (MJBA), the cannabis industry chamber of commerce, are inviting legal cannabis job seekers to join dozens of employers as the first crop of Washington’s legal cannabis businesses go to market at “Job Fair Seattle,

Sponsors at the historic industry event will include many of Washington State’s top employers who are actively seeking to fill immediate openings in the fast-growing recreational marijuana, medical cannabis and industrial hemp industries, including Viridian Sciences, Eden Labs, CIPS, Blue Line Protection, Evergreen Herbal and Ms. Mary Staffing.

“Washington’s legal cannabis industry is ramping up quickly, and the demand for qualified talent for a wide range of high paying jobs is real. Employers are looking for budtenders, trimmers, salespersons, accountants, bookkeepers, security guards, photographers, writers, designers, developers to name but a few,” said MJBA CEO David Rheins.

Added Weedhire CEO David Bernstein in a YouTube video, “Bring your resume to the MJBA Job Fair this Saturday in Bellevue, WA — sign up for a free Weedhire.com profile or better yet share our short video with friends.”

Florida Gov’t Weekly Roundup: Get That Pot To Sick Kids ASAP

FLORIDA:  Health regulators are wasting no time getting Florida ready for the “green rush” already sweeping the state as they craft a framework for the new medical marijuana industry. Meanwhile, the “just say no” crowd is letting loose with the green, fanning the flames in the fight over a proposed constitutional amendment that would legalize weed for a variety of medical reasons.

It’s sort of a pot rush, even if the type of weed that will soon be spreading across the state supposedly doesn’t get users high.

 

The Department of Health’s Office of Compassionate Use this week hurriedly published a revised rule governing everything from stems and seeds to serving the substance to sick kids. The latest version of the rule included tweaks to who can own the five “dispensing organizations” that will eventually get licensed by the state to grow, process and distribute newly-authorized strains of cannabis.

Marijuana Business Association Coming To Vancouver, WA

By Sue Vorenberg

WASHINGTON: The Marijuana Business Association will be in Vancouver on Thursday, Sept. 18 for a special free Meetup event at the Vancouver Community Library.The meeting will be at the 901 C Street location from 6-8 p.m. and is sponsored by Viridian Sciences, a Vancouver marijuana industry software company.

Looks like a good event for local biz folks to check out and meet others in the industry in Southwest Washington.

“The reason that MJBA does these things is to empower the local community,” said Dave Rheins, CEO and co-founder of the organization. “So we put together these Meetups to share information, make introductions and really learn who is doing what in the area.”

There will be a few vendor tables and speakers on hand to talk about the industry sector here and the issues it faces. Local companies can also sign up to talk to the group by emailing Morgan@mjba.net.

So far MJBA has scheduled a business presentation and a political presentation from Bob Dingenthal, who is running for Congress against Jaime Herrera-Beutler this fall, for the event.

There will also have open networking time and a chance to meet Mike Davis, who will be the group’s independent representative for the region. (Davis, who lives in Brush Prairie, can be reached at 360-624-4115).

“He came to us from doing other association and business groups,” Rheins said. “He’s here to help be a local facilitator and lend business support to the community.”

So far, MJBA has about 300 members across the state, with a handful in Southwest Washington, including Viridian Sciences, Rheins said.

Membership in the group is $250 a year per business.

Rheins will be at the meeting as will others from the organization. I’m planning on attending as well.

Who else is coming?

Cheers,
-SueVo (sue.vorenberg@columbian.com)