Defeating the Black Market Starts with Defeating Corporate Greed
As the Cannabis Industry enters its full second year, the number one threat to the legal market in California is the Black Market. There are many theories as to the cause of the threat and why the Black Market is continuing to thrive. The number one target for the reasoning is the high taxes that companies face in the industry. Companies state that if it were not for the taxes the State has imposed, the Black Market would not exist.
There is a flaw to that thinking though. The flaw starts with many wanting to point blame at someone other than themselves. Sure, the high tax rates in California have not helped the situation but it is not the only cause to the thriving Black Market. Companies high costs and Corporate Greed are also holding back the success of the legal market.
With so many investors jumping into the industry and everyone trying to get rich quick rather than enhancing the legal market, greed has hurt this fight. A lot of investors means a lot of demand on return. If an investor drops $1 Million into a company and would like their investment back along with a 10% return, now that company is required to pay all their expenses, part of the $1 Million investment, and part of the return to the investors. The problem is that a lot of the well-known brands have had much more than $1 Million invested into them. You take the required payback on top of expenses, now companies are in a tough position to make a lot of money in order to turn a profit. This causes them to pay cultivators bottom dollar, charge retailers more, and/or charge the consumer more. This is where part of the problem lies because taxes aside, this has become a corporate business rather than an industry working to provide society with the best, safest, and less expensive products. However, if companies were to work together, figure out the pricing challenges needed to defeat the Black Market, this industry may have a chance to survive.
Likewise, understanding business operations and financials is key to making this happen as well. Many companies wanted to create these corporate settings so they hired a whole executive staff. They have CEO’s, COO’s, CFO’s, entire finance teams, entire driver/lab teams, etc. Many of these are paid decent 6 figure salaries putting the operational expenses for salaries alone through the roof. There is no thought to the fact that driving or lab work can be done by the people who created those companies. Taking the Distribution sector, some companies have a dozen plus deliveries weekly all throughout the State. In a well-run low cost company, the CEO is billing, collecting payment, doing all the financials and managing the compliance requirements, the COO and Directors are driving, scheduling while driving, cash collection, and handling the BCC Manifest work. These companies are able to charge brands half or more of what other distribution companies charge and as they build, they can help these brand cut costs, still make their margins, and allow those brands to charge less. Charging less will end up lowering the rates to the end user and allow more competition against the Black Market. Brand creators should stay in the lab and have a partner out calling on companies and making appearances. That will avoid the need for a lab director and PR people. Saves the company money if the Executive who developed the product continued to make it rather than hire someone else to do what they are good at.
This is not to say that there are not Sales teams needed to increase revenue or Legal/Executive personnel or other key personnel needed for companies to operate. But to combat the Black Market, we need to work together as a legal industry to take a look in house while the government is working through their issues. AB 286 is working its way through the State government in order to curb the taxes. But the big question will be, if those taxes are lowered, do companies just use that to pad their pockets or to pay investors? Or will they use that savings to lower the cost to the end users. AB 286 just delays the inevitable in those high taxes so when the cultivation taxes return, will the hike happen again? The Black Market needs to be squeezed out of existence so when July 2022 comes around and the cultivation tax returns and the excise tax is once again lifted, there is no Black Market to turn to.
Taxes will not do it alone. We need to look inward to our own operations. We need to continue to follow the path of the family farm. They are staying true to their roots in the industry and harvesting on their own. They are growing on their own. They are keeping things sweet and simple and not huge and complex. If we follow their path, look inward, cut operations everywhere we can, limit the control investors have over our companies so we aren’t targeting huge margins, there is no doubt the legal cannabis industry will survive and thrive. Some have given control over this sacred industry to corporate greed, investors, and the government. We can’t completely control the government or their pace, but we can definitely control the greed of Executives and Investors if we band together and take back the industry and others just jumped in because they saw the wrong kind of green in front of them.
– Brandon Morales