Coming immediately around the bend at California’s cannabis operators is a massive onslaught of regulatory detail that will require millions of dollars to navigate to compliance. Regulators seem to think there’s plenty of cash in cannabis to make this happen from the “starting line” regulations they have crafted. To be honest, I’m not so sure.
Marijuana Business Daily’s Factbook 2016 reports less than 25% of cannabis businesses are funded by outside money; that leaves 75% of all cannabis businesses as self-funded! And more than 50% report they need capital within the next year to survive. While news media insists on showing fluttering cash machines with each cannabis story, it’s my opinion that our industry is gravely underfunded to meet “starting-line” regulation. There is a clear disconnect between the perception of this industry’s wealth and reality; the reality is money is scarce and difficult to shepherd into this industry.
The lack of investment is hardly surprising; here’s a sneak-peak at what investors face: Few cannabis companies have historical performance data (in a black market, data is evidence of illegal activity.) Few cannabis operators use contracts (in a black market, the courts won’t enforce them.) Similarly, few have expertise in scaling business growth (in a black market, scaling invites law enforcement attack.) Say, did I mention the abject lack of banking or credit line access? It’s easy to see why capital is not just pouring into our state’s industry.
Sadly, the fact is that investment capital is critical to the success of our industry meeting “starting-line” regulations. The lack of capital to meet regulatory burdens just reinforces the continued proliferation of the black market. Period. End of sentence. Full stop.
Our government leaders must learn that “more carrot, less stick” is the smarter policy choice for an industry that has for years blossomed in the dark under threat of intense criminal prosecution. What we need are policies that encourage a new investor class; policies that acknowledge investor economic risk is critical to our state’s successful transition from a policy of “ban and imprison” to “tax and regulate.”
There is a clear disconnect between the perception of this industry’s wealth and reality; the reality is money is scarce and difficult to shepherd into this industry.