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In the United States, small businesses typically operate on a hub-and-spoke model. All employees in every operation report to the owner and/or CEO. Larger businesses, of necessity, look more like pyramids, with layers of employees and entire operations controlled by intermediate leaders beneath the CEO. The layers may include operations such as legal, finance, accounting, risk management, IT, marketing, research and public relations. The CEO may be at the top of the pyramid or may be a layer down, beneath the owners, shareholders and directors.

Those companies that survive the start-up phase may be sold to larger companies for a substantial gain. The few that grow into larger companies rarely do so under original management, going to show that hub-and-spoke management has its limits.

Whatever each business might be trying to do, the question remains, “What’s your model?” Closely related questions are, “What are you trying to do?” (your goal) and “What are you actually doing?” (steps taken to reach your goal). We suggest considering these questions in the harshest and most critical terms if you hope for your business to navigate and survive the norms and risks associated with any American venture, including:

  • Policy: In our industry-as in many others-politics matter immensely, whether we want them to or not.
  • Lawsuits: In America, disappointed or injured consumers, and consumers who claim to be disappointed or injured, regularly file lawsuits against businesses.
  • Regulations: The Occupational Safety and Health Administration (OSHA), the IRS, the Food and Drug Administration (FDA) and similar state and local regulators audit businesses for compliance and issue fines for noncompliance.
  • Collapsing Prices: Even worse, many products become mere commodities and compete based on price alone. We have seen some commoditization in marijuana markets. When prices collapse, no business serves its customers particularly well, nor are businesses generally profitable. (More on decommoditization later.)

Businesses that succeed will be the ones that take control of each critical phase of their operations. In those businesses, the owners will recognize the business functions that they can expect to control and where they will probably need help. A great grower might be terrible with regulatory paperwork. A great salesperson might need help with recordkeeping. Some of the most astute owners might hire their own bosses, at least in terms of their day-to day operations.

We believe owners and operators should consider the structural format on p. 106, which outlines key organizational elements and industry factors, to take control of their businesses. This structure is not cannabis industry-specific, but outlines practices relevant to all U.S. businesses.

It’s important to note that our products are comparable to ingestible consumer packaged goods, which, in America, are typically regulated as foods, supplements or drugs. These long-established models exist for almost every necessary business activity.

This structure is important to create and implement because Americans expect products that meet their expectations and that are free from contamination. And when Americans are disappointed with their products, they sue.

Decommoditization

When it comes to goods produced and sold, the cannabis industry, like many other markets, is facing commoditization, the descent of all products into an indescript, low-priced commodity. Commoditization is not new in American business.

For example, toothpaste and rubbing alcohol each used to be branded. Toothpaste is still branded. Its shelf space has been radically expanded, and now includes room for SKUs (stock keeping units) that serve consumer needs from flavors for children, to whitening for young adults, to desensitizing products for older consumers or those with compromised teeth.

By contrast, rubbing alcohol, now sold extremely inexpensively in 8-ounce and 16-ounce containers, is no longer branded. In other words, toothpaste producers and retailers have identified and targeted consumer market segments with specific needs. These producers and retailers work to understand and serve those specific consumer needs, while making a profit from the quality of their service. Rubbing alcohol, however, is rubbing alcohol. Competition for consumer interest is limited to price cutting.

Nevertheless, one can look at other developments regarding alcohol in the cosmetics sections of various American retailers. Various companies have produced branded facial cleansers and toners whose primary ingredients include alcohol. The owners of those brands have, so far, focused on specific consumer needs for each of their specific products. For example, some brands are directed toward teenagers, while others are directed at more mature consumers. Our point is that the producers of these cosmetic products using alcohol have worked to identify and serve their consumers’ needs and have, consequently, profited from the exercise in ways that the producers of rubbing alcohol have not.

As a marijuana cultivator and producer, apart from all our other business concerns, we continuously fight commodotization of our products, by focusing on how to maintain our customers’ respect and to present to our customers unique products that serve their current tastes. We accept the thoughts that whatever worked well yesterday might not work at all tomorrow, and we must continue doing so.

Politically Speaking

Having discussed the issues that each of us as individual corporate participants in the industry might consider, let’s now address the impact of working together.

To pick up on an earlier theme, this wheel, too, already has been invented by major American businesses. Most trade organizations are comprised of both sellers and buyers; in terms of the cannabis industry, those include growers/producers and retail dispensaries. These trade organizations foster commercial relationships among their members that create a level of cooperation and cordiality. Everyone is there to help everyone else.

Our point of view is that the success of our individual enterprises will be defined, in large part, by how well we work together. As an industry, we have a common interest, whether from a medical or from a recreational point of view, in having our audience understand some of the basic reasons why we exist, why there is a demand for our products, why we are medically so effective, and why we, in recreational settings, do no harm. The answer is the human endo-cannabinoid system.

Think of it this way: How long will it take until our policy-making politicians and regulators, and even our consumers, can readily explain these ideas in a coherent way? The answer ultimately depends on us. To relay our message effectively to consumers, as well as influence the market and its policy, we must structure our businesses with clear objectives (defining not only what we do, but how we do it), present unique solutions to various consumer profiles and use our collective power to move forward.

Note: The authors do not provide legal, accounting or tax advice. This material has been prepared for informational purposes only and is not intended to provide, and should not be relied on for legal, accounting or tax advice. You should consult your own legal, accounting and tax advisors before acting on any related matters.

Thomas Schultz President, Connecticut Pharmaceutical Solutions (CPS), CTPharma.com

Rino Ferrarese COO, Connecticut Pharmaceutical Solutions