Marijuana Business Daily produced MJBizConNEXT that took place in New Orleans last week. What follows are some of the most important business takeaways from the conference. The story also includes takeaways from the inaugural Hemp Industry Daily Conference, which ran concurrently and was produced by Hemp Industry Daily. To read Part 1, click here. Our regularly scheduled Chart of the Week will run Wednesday.)
Always follow the ABCs of M&A
As the pending $3.4 billion megamerger between leading Canadian marijuana company Canopy Growth and New York-based Acreage Holdings illustrates, mergers and acquisitions in the cannabis industry are getting larger and more complex.
- Break bread with your counterpart. By incorporating food into the negotiation, it humanizes the conversation and puts people in a good mood.
- Shut off your email and turn on the webcam. “Email is the negotiation killer,” Perzow said, adding, “forget the phone. People want to see your face.”
- When making concessions, move your adversary closer to a settlement, increase his or her level of satisfaction and protect your margin.
- Always be trading. Buyers will always take advantage, according to Perzow, unless you put them in a position where they’re getting something in return.
- Take risks. Persons willing to face uncertainty will do better.
- Aim high. “In a negotiation, we get what we expect,” Perzow said, so leave room to negotiate.
- Put your strongest argument up first. The more conditions you put into a negotiation, the more likely your argument will be diluted.
- Be the first to anchor a price. You want to be the one to set the reference point in a negotiation, but don’t anchor too high or too low.
- Show confidence. Even if you’re not confident in your pricing, “fake it,” Perzow said. Confident people don’t have to talk too much and are confident in their pricing.
- Never negotiate under a deadline.
Lock in your buyer
Potential cannabis growers would do well to heed the advice of veteran cultivator Joshua Haupt, chief revenue officer for Denver-based Medicine Man Technologies: Don’t plant until you have a plan to sell your flower.
A marijuana business permit isn’t a license to print money, he noted.
In fact, it’s a good way to lose an investment.
In saturated markets plagued by oversupply, the competition is fierce, and as growers look to exit the industry, fire sales and going-out-of-business discounts are difficult to match from a price standpoint.
If you want to grow marijuana in a state that doesn’t allow for vertical integration, where you could own a retail license along with a cultivation and processing permit, then you want to contract with extraction or retail companies who will buy your plants when they’re ready.
“Just because you grow it doesn’t mean it’s sold,” Haupt added.
Institutional investors: a dam about to break?
They’re on the outside looking in and they aren’t really biting, at least not in any quantity yet. The long-awaited presence of institutional investors – commercial banks, mutual funds, pension funds, etc. – in the U.S cannabis market remains in its infancy at best. But that is expected to change soon.
“The interest levels have grown in magnitudes, and I think the floodgates will open in the next six to 12 months,” Larry Schnurmacher, managing partner at Florida-based venture capitalist fund Phyto Partners, told a panel.
The question remains: What will it take for such investors to take the plunge?
They won’t likely have to wait for full federal legalization. Rather, passage of either the SAFE Banking Act or the STATES Act could spur institutional investors to open their checkbooks.
“Institutional investors have a major problem with cannabis being a cash industry,” said Scott Greiper, president of New York-based Viridian Capital Advisors. The passage of either of these acts would remove “some of the existentialist threat” to cannabis as a cash business.
M&A not stopping anytime soon
It feels like rarely a week goes by when there isn’t a major M&A deal announced in the U.S cannabis industry. And the reality is in such an immature market such activity isn’t going to stop.
As a result of this dynamic, smaller companies new to the industry must prepare themselves for an exit strategy as part of their overall business plan – they can’t afford not to.
“The exit is today, there are buyers in that hall (on MJBizConNEXT’s show floor),” Greiper of Viridian Advisors said.
The reality of consolidation may be even more intense currently in the hemp industry.
“The fragmentation is the market is so immense right now,” said Brett Hundley, equity analyst at New York-based Seaport Global. “There is a lot of M&A on the health and wellness side.”
And while everyone talks about the importance of brands, it is a hugely competitive space.
“In the mania of M&A, hemp is a primary driver. But the hemp industry won’t support thousands of brands,” Greiper said.
Is CBD a sustainable business?
The hottest sector in global cannabis right now is CBD.
But how does the industry determine whether CBD is a fad of the moment or a sustainable business that companies can feel confident will pay dividends well into the future?
Bethany Gomez, managing director of Florida-based research firm Brightfield Group, said one way to tell is by the volume of large retail stores, multilevel marketers and online stores now carrying CBD products, as well as the millions of consumers of every demographic now using – and demanding – CBD.
Even so, as the U.S. Food and Drug Administration continues through its just-beginning process to develop regulations for CBD, Gomez said many large companies are seeing CBD as too risky without regulation.
This provides smaller companies with a window to get into the business now and gain a foothold in the marketplace before the “Bigs” (Pharma, Ag, Tech, Booze) start incorporating CBD into everything and it goes even more mainstream, Gomez said.
“This is the year that companies need to be blowing out their marketing budget,” Gomez said.
But it’s necessary to do so with compliance in mind.
“Act and operate as though this industry is already a highly regulated industry right now,” said Frank Lampe, vice president of communications and industry relations for United Natural Products Association, an international trade association in Salt Lake City that focuses on best practices and regulatory advocacy for the dietary supplements market.
Create brand ambassadors
With new companies entering the hemp and CBD markets left and right, it’s necessary for businesses to look for opportunities to differentiate themselves – and their products – in an effort to create brand awareness.
But for those who want the kind of success that mainstream brands have realized, it’s even better to create a community of brand ambassadors, said Jennifer Culpeper, the founder and chief creative director of Brand Joint, a Maryland-based branding agency that provides specialized strategy and design to hemp companies.
Culpeper said if you look up “hemp cream” online, any number of products will come up – but, at first glance, consumers won’t know which is the best brand for their needs.
So, companies must narrow their audience and find their “tribe,” or the consumers who share the same values that align with your business.
Calling on consumer brands such as Yeti coolers, which got its start with hunters and fishermen, and Lululemon, which created a community by offering free yoga classes in its stores, Culpeper quoted poet Maya Angelou: “People will never forget how you made them feel.”
Appealing to consumers’ needs and values, Culpeper said, is how a company creates brand ambassadors – the people who will promote your brand for you.