By Charles Roques
Entrepreneurs help create and define an industry and can start at surprisingly humble levels, like a garage. Some are storefront businesses, and some may even start on wheels like the pushcarts so ubiquitous on Manhattan’s streets.
I once empathized with a donut vendor about his hard work and struggle with a wife and new child at home, only to learn he was in the process of buying several others and leasing them out. From there he wanted to create his own line and start baking donuts and pastries himself. What seemed like a low-income rut turned out to be someone on a stepping stone to a larger enterprise. It might appear to be subsistence-level retailing, but that might depend on the ambition of the owner.
Unfortunately, a more common storefront business strategy is to try anything and see what works. Throw crap at the wall and see what sticks. One of my favorites was a travel agency, with a boldly lettered, large, bright-red sign above the window. Below it on the front window were a jumble of smaller signs offering a hair stylist, driving school, international money transfers, incense, candles and phone cards. Does your cannabis company also offer driving lessons? I hope not.
Many cannabis companies are the pushcarts and storefront travel agencies of the stock market right now. Some might have more ambition, or greed, than common sense.
It’s difficult to be philosophical about losing money, but it might help in this sector, not to mention a sense of humor. Sometimes it is hard to tell what sector this really is. Is your company a little too diverse? Some companies appear to be cannabis-related only in name, or at least that’s what their names are this week. One of the “cannabis” companies was formerly in the seafood business, another proudly proclaimed that earnings from the automobile sales division were up! A cannabis company with sales figures from auto sales? I’m not sure if the reputation of car salesmen helps bolster the corporate image, or if revenues from that are indicative of business acumen in the cannabis sector. It doesn’t necessarily mean that someone is incapable of juggling different products as much as one tends to question where the real expertise lies, especially pertaining to the largest sign on your storefront.
Until you hone your skills understanding charts or technical analysis, there are other ways to start filling in a picture of the companies, which although incomplete, can still indicate red flags and some caution until learning more. It’s important to keep your eyes open for hints to either poor business skills or malfeasance … and what does the company really do?
Although the industry is focusing more, some companies still seem to be a grab bag of products. It doesn’t hurt to understand where one gains their expertise. Potential growth companies tend to have a focus on some aspect of the industry that will also grow. Growth can include diversity, but the best diversity often grows from a core belief and strategy. The sector is growing rapidly and there is a great deal of intra-sector diversity starting to emerge so straying too far from the field to include a hodgepodge of unrelated products may not be a smart business idea.
Young cannabis startups have many struggles so they may not have great income figures and profits and it’s important to understand why. Losing money in this sector may be because of poor products or bad management. It might be about money owed to their initial investors. It could be behind the scenes deals of stocks that benefit a few people at the cost of shareholders and risk to the company. On the up side it might be because of reinvestment in infrastructure for company growth and the expenses that come with it. Many things can affect the share price in this arena of over-the-counter stocks where many of the companies can get by with less stringent financial reporting.
Long-term investing even in the best companies demands some fundamental initial research and staying up to date on new developments and products. Even the best have ups and downs, changes in management, some price fluctuation. Good companies tend to have some consistency about handling various aspects of their business, e.g., they don’t over-promote without something to back it up and they also make timely reports and filings, to name two.
The storefront entrepreneurial spirit is admirable, but it doesn’t hurt to know how committed companies are to developing cannabis or related products. Are they just jumping on the bandwagon? Are they evolving new products? Do the companies have too much signage? Booking your travels at the agency above might not get you to the promised destination. You might not want your companies to concentrate on a single product, but you also might not want them to include the kitchen sink just to expand the product line. Try to make a connection between the products, services and expertise.
And if something’s not sticking to the wall, you definitely don’t want to catch it.