Fear Not, Cannabis: Capital is Your Friend

A few weeks ago I read an article in SF Weekly titled, "The Greed Rush: Venture Capital Enters Cannabis." In it, the author laments the arrival of people like me and institutions like Gateway (California's first accelerator for startups in the cannabis space). He recounts the heartbreaking story of a woman who is losing her collective and implies that somehow the evil venture capitalists are responsible. Of course, the truth is that she's losing her farm (co-owned with her spouse) due to a recent divorce, and it's the new state regulations against vertical integration that prevent her from continuing to operate her collective, not greedy venture capitalists. Nevertheless, the author just kept pushing his anti-VC narrative, facts be damned.

While some people may be content with that mindset, it is my belief that such an attitude is indicative of a larger error in thinking--one that will ultimately lead to failure for any cannabis company, whether you're a startup or an established business. Instead, I recommend adopting the Silicon Valley mindset. 

Let's start by drawing a distinction between free market activity and government activity. In a purely free market (which, admittedly, we're not in--but I'll address that later), all transactions are win-win, at least according to the judgment of the people involved at the time of the transaction. I have an iPhone. You have $300. I sell you my iPhone because you value the iPhone more than your $300, and I value the $300 more than my iPhone. We're both happy. Win-win. Of course, if you get my iPhone and discover it's just a block of wood that I merely painted to look like an iPhone, then you're justifiably angry and the transaction is of the win-lose variety. But that's fraud and for the purposes of this discussion we'll ignore that case. So: free-market transactions = win-win.

Now, enter the government. What sets the government apart from individuals and corporations is that it can pass laws that are enforced using police, i.e. guns. Like California's Medical Marijuana Regulation and Safety Act (MMRSA), for example. Vertically integrated? Stop and pay a fine, or go to jail. Doesn't sound sowin-win now, does it?

With that in mind, let's take a look at the Silicon Valley mindset, since the term "Venture Capital" is practically synonymous with Silicon Valley startup technology funding. Silicon Valley is, for the most part, very lightly regulated compared to industries like healthcare, aviation, finance, and of course cannabis. It's this lack of government involvement that allows people to make individual win-win decisions about what to build and how to fund it, and ultimately it's this relatively free marketplace that allows technology to continue to advance at the pace of Moore's law, becoming cheaper and better over time. In such an environment, value is created from scratch--not merely shifted around from one party to another. In other words, the term "making money" has a very literal meaning. To paraphrase Rolling Stone writer PJ O'Rourke, Silicon Valley understands that wealth is not a pizza, whereby if I have too many slices you're left with nothing but a Domino's box to feed your family. The market is always making new pizzas; always expanding. New products and businesses are constantly emerging, and although there is competition, one person's success is not viewed as another person's failure. There's even a word--popular in game theory and in Silicon Valley for decades--for competitive cooperation: co-opetition.

The opposite of this win-win wealth-creation attitude is the zero-sum mindset. The zero-sum mindset is characterized by a sort of schadenfreude: "I want my competitors to fail because then there will be more pizza for me!" This completely misses the mark when it comes to understanding what wealth is and how value is created long-term. Unfortunately, I've seen this mindset all too often in the cannabis industry, and it's going to backfire on those who live by it. It manifests in little sophomoric ways, like social ostracism and vituperative gossip at parties. And in ways reminiscent of a full-blown mafia operation: dishonest, smarmy, disgusting lobbying of local cities or even state governments to modify laws that keep your business safe while blocking newcomers or competitors by using the force of government.

The cannabis industry is clearly transforming, and as it moves out of the shadows and into the light--as it becomes less of a black market and more of a free market--the zero-sum mindset will not suffice. For those with an abundance mindset--those focused on growing the industry itself and not on squabbling over pizza slices with existing competitors--venture capital is your friend. Growing this industry will require capital--lots of it--and there's nothing wrong with that. In fact, it's a good thing. Capital allows entrepreneurs to grow more quickly, experiment with new ideas and new products, and ultimately create an industry that provides even more value to patients and consumers. Better, more potent, more reliable, more consistent products at a lower cost. Just like technology for the past several decades.

Sure, venture capitalists want to make more money. Is that greedy? Of course, but no more so than when entrepreneurs aspire to build or maintain successful companies themselves. That kind of greed is the rising tide that lifts all boats. What's truly greedy--the more ugly, destructive kind of greed--is the greed of the those people fighting, writing, and lobbying to prevent any kind of change in the industry just to protect their own selfish interests at the expense of everyone else. The industry is changing. Embrace it. And embrace the capital coming in to help facilitate that change. Or become a bitter, nasty member of the old cannabis mafia and grease the wheels of governments in a desperate and greedy attempt to give yourself an unfair advantage over others. The choice is yours. 

Cannabis entrepreneurs that are ready to give up the petty zero-sum mentality and adopt the win-win mindset of abundance and cooperation should stop by Gateway sometime. We're here to help, venture capital in hand.