Legalization is Coming

I believe that November 2016 will be our Rubicon moment with the California voters passing an initiative to make cannabis legal for recreational purposes, whether it’s age 18 (cigarettes) or 21 (alcohol).

That said, I’ve got some serious concerns about the future of the Emerald Triangle (Humboldt, Trinity and Mendocino Counties). My biggest fear with cannabis legalization is corporations getting involved. The insanely high profit margins will naturally attract huge capital and some of the smartest minds out there.

Yes, I can already hear the arguments that publicly traded stock corporations won’t touch cannabis because of it being illegal on a federal basis. True, however that won’t stop private corporations, VCs (Venture Capital) and PEs (Private Equity) from getting in the game with a vengeance. The thing about capital is that it flows to opportunity. Look no further than Lt. Governor Gavin Newsom’s North Coast Journal comments after visiting local cannabis farms, “Big money influences are already appearing in Sacramento.”

There’s an old saying on Wall Street, “Everyone’s a genius in a bull market.” Right now cannabis is a license to print money. Yes, there are risks involved but like Glenn Frey sung, “It’s the lure of easy money, it’s got a very strong appeal.”

Cannabis legalization will change this industry from its current underground outlaw criminals to agriculture farmers, manufacturers and marketers. Cannabis production will explode to meet the demand of the market place. Keep in mind that 65% of all dispensary sales are ancillary products, such as cannabis infused cookies, chocolates, suckers, gummy candies, tinctures, salves, creams, lube, balms, lotions, pills, pot-o-coffee, weedka, and pet products.

Let’s look at the math. I can buy a six-inch clone for $10, add some soils, Gavita lighting, lots of water and in three months it’s three feet tall and a $1,000 (minimum, wholesale) product. They don’t call it “weed” for nothing. If I take that retail it’s $6,400 ($50 an 1/8 ounce x 8 x 16 ounces/pound = $6,400). I’ll repeat that again, $10 wholesale to $6,400 retail in three months. In a recent interview, one entrepreneur talked about how his tinctures cost around $2 to produce and he can sell them for $35 each.

Every time there is the latest drug bust in Humboldt, the Lost Coast Outpost prints the mug shots of our dopers with IQs in the single digits. Silicon Valley, San Francisco and Los Angeles are all sitting back laughing at the competition.

Here’s what I see happening in the near future. The latest Ivy League, Stanford, USC, and Berkeley MBAs will be trekking from San Diego to Humboldt, meeting with city, county and state electeds along with government staff pitching their vertically integrated cannabis business from farming, to processing, to ancillary products, to retail distribution.

They’ll walk into meetings in their Armani, Hugo Boss, Donna Karan suits pitching an “open door business model.” They’ll talk about their Human Resource Department offering a complete benefits package including health and dental insurance along with a 401-k plan. Most important, all sales taxes, local, state, federal, social security and Medicare taxes, along with workers comp, etc. will be paid to the appropriate government agencies. They’ll stress that any governmental agency can come at any time to inspect their business. How many in the cannabis industry can say that today?

So if your business model includes machine guns and you’re not in the military – you’re a drug dealer, not a farmer and I doubt you’ll survive the coming shake out in the cannabis industry.

If you operate a cash business and pay limited or no taxes – you’re a drug dealer, not a farmer.

If you cross state lines to sell product to your connect – you’re a drug dealer, not a farmer.

Very soon the Emerald Triangle will be competing against Silicon Valley. Which one is better prepared to run a legitimate, tax-paying business?

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