The Business of Marijuana

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The Business of Marijuana

Some fascinating people have introduced me to the Marijuana business.  A grower, a financier, a security specialist…  I am intrigued.

As for the product, I am not a user.  But I am not a golfer and I have nothing against golf and have invested in some golfing sports related companies. For me it is both the challenge as well as the opportunity for a good profit.

The good news, it have been legalized in a number of states. The demand for the products, the formally illegal drug has soared. High Times magazine had a story about a hedge fund dedicated to the industry.

There are still several hurdles to be addressed: banking is next to impossible thus it is a cash business.  Making and tracking of investments will have fewer points of control. Entrepreneurs are not ready for the state requirements to track products from Seed to Shelf or Farm to Pharmacy. The crops are wildly variable in quality and composition.  It is a cottage industry with too many players and a very low cost to enter the markets as a producer but a very high cost for being compliant.  It is NOT an interstate business – at any stage of the game, financing, management, growth and sales must all be within one state. Bankers by definition cannot deal with the industries handlers of the products as it is still a federal crime and this the banker are technically and by definition laundering many. (Handling money from an illegal operation is part of the definition required for money laundering.) It is a farming business and has all of the risks of farming, plus.  And last – yes this is a bad thing, the demand is very high – no pun intended, but enjoyed.

Some of the issues can be overcome with careful planning and proper structure for the entities.  Also – real management and tracking has to take place in an industry that has for years done its very best – not to be tracked. Quality control and uniformity to the product should be addressed or at least full disclosure of a given crop’s or batches chemical content should be disclosed – much like on the food labels.

The criminal element that once dominated this industry is NOT going away but has been gaining strength and will use and has used its muscle so as not to loose market shares.   In some instances the maneuvers look more like they are trying to dominate a market by and through as many members as they have all applying for a limited number of licenses.  It is the old dry cleaner model of an owner owning 18 dry clearing stores all with different names in the same area.  It looks like there is competition – but there is none.

Also, at least for now in the State of Colorado – a price of an ounce of pot has gone through the roof – over tripling.  Also – more pot has been sold than has been declared as grown locally.  Hm, I wonder how something like this could have occurred?

The business is coming out of the shadows, into the lights, yet for a time being many of the players are unlikely to change.

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