Despite the success of legalization initiatives at the ballot box, a cloud of political uncertainty has settled over our industry. The incoming Trump administration has the potential to move the cannabis industry backwards. Trump’s nominee for attorney-general, Jeff Sessions, is outspokenly anti-marijuana. And even if the feds don’t go back to kicking down doors and busting dispensaries, it’s a safe bet that the federal government won’t end federal prohibition any time soon.
That has some costly results for our society. For example, university researchers aren’t allowed to study the forbidden plant without a permit for very limited research supervised by the DEA, so there has been little scientific study of the medicinal benefits of cannabis. And, of course, the continued federal prohibition is especially injurious for hundreds of thousands of people arrested nationwide for cannabis possession each year, according to the Drug Policy Alliance.
But there is a silver lining here. In fact, I would argue that the political headwinds work to the advantage of small- and medium-sized companies now strategizing how to survive an onslaught from bigger incoming competitors.
Postponing the inevitable march toward federal legalization buys some crucial time.
As it stands, more than a billion dollars was invested in the cannabis industry last year, according to a report from Veridian Capital Advisors But there’s a lot more money that’s been sidelined because of prohibition. Big institutional investors have rules that preclude them from doing business with companies that break federal law.
Those deep-pocketed investors are still on the way. But the federal roadblock buys time for the industry’s small businesses to prepare and adapt.
Companies get extra time to consider whether to fight industry consolidation or embrace it. For some small businesses, strategic partnerships may make the difference between life and death.
Legacy cultivators face competition from bigger and bigger grow ops. Massive farms in the United States and Canada are increasingly industrial-scale operations.
Growers may decide that the best way to compete is to expand. And so, some entrepreneurs may best use this extra time to locate investors or partners, and bulk up.
Just make sure you’ve taken the time to sketch out a business plan and a well-researched budget.
As growers calculate their financial projections, they should remember that the price for flower may not hold steady in coming years. As states like Colorado and Washington have seen, increased cannabis production has boosted supply and depressed prices.
Some small cultivators may analyze their positions and decide that they just don’t have enough capital to do the job right. No sense in doubling the size of the indoor garden if you can’t afford to budget for extra staff and increased utility costs.
These growers may choose a more targeted strategy. Instead of growing in size, they could concentrate on growing recognition for their brand. Top-shelf strains continue to fetch premium prices. Boutique cultivators who consistently deliver exceptionally primo bud can not only expand their profit margins, they can also market their higher quality product as a way to differentiate from mass-produced marijuana.
Finally, we can all use the extra time until federal prohibition is repealed to network and support small businesses in our local communities. Homegrown entrepreneurs must compete with giant corporate insurgents who have distribution deals with big-box retailers. We, as an industry, can collectively push back and boycott brands sold, for example, in the hydroponics or nutrients section at Home Depot. Instead, we can support those with the hands-on experience and deep knowledge of best growing practices – the small business owners at your local hydroponics stores.
Jeff Fenley is CEO of Powerbox, a manufacturer of hydroponics lighting controllers, timers, flipboxes, ballasts and reflectors.
