By Charles Roques
South American culture has its own version of American daily soap operas, known as telenovelas. While living there, I was once asked why Americans called televised melodramas soap operas because the translated description makes no sense in Spanish.
It doesn’t make much sense in English until you understand the origin. The opera connection was easy to explain because of the emoting of the actors, the domestic strife, extra-marital affairs and occasional tragedy. But the soap connection was more mundane. These daytime TV series were often watched by housewives or domestic help during the workday, making it an opportune time for promoters to advertise laundry detergents. With so many shows and so many soaps, it soon became a crowded market.
The original investors of a startup, which may include the executive board and officers, are in a sense the sponsors of the company. The big issue for a shareholder in a cannabis company is the control that these financiers may or may not have over the company. Their influence and presence can be as strong as the soap manufacturers of daytime TV, and some of the drama seen in the cannabis sector can approach a similar level of over-the-top emotional response, infidelity or betrayal.
Too often the innovators and visionaries of a new sector don’t have the financial means to pursue their vision. They may have to resort to partnerships with opportunists who base their idea of success on the speed with which they can earn back their money, not on the necessary time for the refinement of a product or an idea. Quest for research knowledge and quest for riches do not follow the same time table.
Seeing value in the research of a product or an idea can depend upon your definition of value. Many cannabis stories start out with good ideas and research, perhaps for medicinal reasons, perhaps for technological reasons, but the people with these ideas may not have the capital to bring these ideas to fruition. Too often the investors have less regard for this research than the profits expected from it.
Even though a company may have a great storyline and plot, the real drama might be more about the sponsors behind the scenes. The financiers could be playing too large of a role in a company, even undermining a company’s best assets and research because of false expectations.
This mix of visionaries struggling with financiers betting on grand rewards can be problematic. This past week saw the ouster of the respected founder of a cannabis company. Were the financiers really cleaning up the story or just dialing in the spin cycle? Who was responsible? Until federal legalization, pay attention to the pitfalls of raising and managing money in this sector.
You also need to pay attention to sponsors, especially if there is evidence of toxic financing. An early-stage company may have to clean house as it grows, but make sure the drama has a good ending for the shareholder and the company, and not just for the financiers. The chart action, the board changes, the dilution of shares all contribute to the public cannabis company soap opera.
Alliances made during the formation of a company may break apart so it is vital to understand which part of the mix was good or bad. Whenever a board changes members or executives are fired, find out why. Someone leaving could be a positive, or it might be a negative. Main characters are allowed to change, but find out why some simply disappear.