May 31, 2013

Former Microsoft Exec’s Plan to Create Major National Cannabis Brand Faces Many Hurdles

nationalmarijuanabrand

Jamen Shively has generated a lot of buzz lately. After revealing plans late last year to launch a high-end marijuana business in Washington State for discerning smokers, the former Microsoft executive one-upped himself yesterday by announcing his intent to take that idea a giant step further and build the first real national cannabis brand.

The envisioned business would essentially consist of a large chain of retail stores selling marijuana and related products across the country. Shively – who bears an eerie resemblance to Bill Gates (perhaps intentionally) – evoked other big-name brands when talking about his plans, insinuating that he will build the “Starbucks of marijuana” and help “mint more millionaires than Microsoft.” He also said he will start by acquiring existing medical marijuana dispensaries in Washington State and Colorado via his newly established company Diego Pellicer Inc, with grand plans to expand into the recreational side of the industry and eventually capture 40% of the global cannabis market.

Sounds impressive. But it doesn’t seem very realistic – or even remotely possible, at least at this point. There’s good reason why no one has already created a truly national marijuana brand (though some companies are making progress on that end). As anyone currently involved in the MMJ business can attest, there are a number of huge hurdles standing in the way. Here are 10 of the biggest challenges:

#1. Marijuana is still illegal in all forms federally. This is the most obvious impediment to creating a national cannabis company – especially one that actually handles marijuana directly. It’s hard to create a legitimate, respectable (and of course legal) national brand around a banned substance.

#2. The federal government has already shown a willingness to crack down on small-scale dispensaries and related operations operating at a local level. Individual cities and states have done so as well (see: California, Montana, Michigan). So it stands to reason that a big national business would face much more scrutiny and pressure. In fact, the federal government has already stated that its main concern is large-scale marijuana operations, be it cultivators, dispensaries or any other type of business handling marijuana. A business set on expanding nationally – and boasting about it in a very public way – would therefore have a huge target on its back.

InStoryEastCoastSeminarAd Former Microsoft Execs Plan to Create Major National Cannabis Brand Faces Many Hurdles#3. The personal, professional and financial risks are unbelievably high. Owners could face jail time and fines, or they could see their entire company – and all their personal investments – go up in smoke overnight.

#4. It’s not even certain that retail stores will open at all or what shape the recreational industry will take. The Obama administration has not yet revealed its take on the recreational marijuana industry, and there’s the possibility that officials will look to prevent retail stores from opening or severely restrict the market/industry.

#5. There isn’t even a quasi-legal “national” market for cannabis. Less than half the country has medical marijuana laws, and just two states have approved recreational cannabis. Although more states are coming on board, it could be a long time before the nation as a whole goes green.

#6. Each state – and often each city – has its own rules and regulations on medical marijuana, making it extraordinarily difficult to establish multiple operations. These rules include everything from residency to ownership requirements. Navigating the regulatory minefield on a large scale would be a nightmare, and in some cases a national business might not even be able to own/open a cannabis retail store or related business.

#7. Capturing 40% of the global market (let alone the state or even local market) is simply not possible at this time given the legal landscape. In Shively’s case it will be even harder: He plans to mainly focus on higher-end consumers, which only account for a fraction of the total market. He’ll have a harder time getting a commanding share of the overall market, in part because of the inevitable (and existing) competition.

#8. It’s very difficult to just jump into the medical marijuana/recreational cannabis business. Many entrepreneurs from other industries have found this out the hard way, losing tons of money in the process. The challenges in this business are unique and the methods and business practices that work in other industries aren’t always effective in the cannabis sector. Shively, therefore, will have to approach this differently than any of his other endeavors/jobs, and that’s where more stumbling blocks arise. For instance, most dispensaries must operate on an all-cash basis because most banks refuse to do business with the industry. How will a national company keep track of – and even access  all that cash?

#9. Investors remain wary of the industry. Shively no doubt has some solid connections and has as good a chance as any other cannabis entrepreneur to raise money. But whether he will be able to get the cash needed – his initial plans call for $10 million, but to truly create a national brand he will need much more than that – is another matter entirely. It’s extraordinarily difficult to land investments in the low seven figures (only a handful of cannabis companies have likely done it) – let alone $10 million.

#10. Volatility rules the day. Uncertainty is the bane of every business, and the marijuana industry has some of the highest levels of uncertainty of any sector. This makes it hard to plan for the long-term and implement the strategies needed to develop a national brand.

There are many more challenges, both big and small. Large companies with a wide reach and national brands will likely emerge one day, but it might not be for a long time, and it’s unclear what segments of the industry it will occur in first.

Shively did not respond to a request for comment, saying he won’t have time to speak until next week. So it’s unclear at this point how he intends to address these challenges, or if he is even aware of them.

Some industry observers and insiders have expressed a hefty dose of skepticism over his plans, pointing out the inherent challenges involved, saying that hubris is getting in the way of reality and highlighting potential flaws in the idea.

“I like the ambition of the idea, but he’ll be facing an uphill battle in every state,” said Jay Czarkowski, a partner in Canna Advisors. “With the strict licensing requirements in the new states, the highly competitive environment for these licenses, and the vast differences between states in their regulations – for-profit, nonprofit and hundreds of other nuances. I don’t think a national chain will be practical for quite a while.”

And anyone can talk a big game – execution is another matter entirely. At this point, Shively hasn’t made much tangible progress beyond holding a press conference (albeit one that featured former Mexican President Vicente Fox), giving media interviews and designing a logo and website.

But while his plans might seem pie-in-the-sky to those in the trenches, the mere fact that someone with an impressive pedigree, financial connections and influence is thinking big and planning for the long-term can only help the industry. At the very least, it moves cannabis more into the mainstream and starts an important discussion on what’s possible – and what’s not – from a business perspective in this industry.


2 Comments:

  1. Fewer things pique the interest of federal law enforcement officials more than the words “millionaire” and “marijuana” in the same sentence. And the press reports he is already buying up dispensaries in Washington – so he isn’t just planning a conspiracy to violate federal law, he’s already in one. Has this guy even *talked* with an attorney? Amazing. Maybe he’s too big to fail…. I truly hope I’m wrong about him, but his seems beyond risky.

  2. Thx

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