This post is from a Fortune article titled ‘Marijuana Entrepreneur: When a Market Dosen’t Exist, Create Your Own’ written by MedMen CEO Adam Bierman published on February 23, 2016.
It’s not easy doing business when you’re in the marijuana industry.
For an entrepreneur aggressively growing a business, much of the time is spent raising equity, taking on debt, creating infrastructure, working with shareholders, and forging new partnerships. There is always the quest to do deals at market. Believe me, I understand that if I were in a business that manufactured electronics, sold cars, or leased construction equipment, there would be a clearly established market norm for just about everything, including cost of capital, terms for partnerships, and expectations from clients would all generally be taken care of by looking at the marketplace.
But for me, there is no norm. Why? Because there is no truly established market for the marijuana industry yet.
I don’t believe this is an issue exclusive to my business – it just happens to be my personal frame of reference. The challenge is that I don’t have a market to compare things to. How much should debt cost me? On one hand, the marijuana business is considered a “risky” business that is federally illegal, precluding money center banks from lending. On the other hand, it has been shown to be a cash cow spitting off crazy returns, making it a safer bet for a lender than most any other type of business. Should I be borrowing money at 4% or 25%? I don’t have an index, public records, 5- and 10-year historical averages, or any of the other data that would typically be used in such context. The same issue applies to valuations, raising equity, and client contracts, and it seeps into every other aspect of my business.
Why not? is my new succinct outlook when dealing with anything where a market comp doesn’t already exist.
There was a breaking point for me and it happened only recently. It was the impetus of this article, and it is how I have tried to live and act since I first entered the marijuana industry. But it wasn’t until this breaking point that my outlook crystallized. During an equity raise for a project, an attorney representing a potential investor was giving me a stump speech about how the only way they could get comfortable with the deal was if their client had debt-like downside protection but with all the equity upside contemplated in the deal. I said that I wasn’t comfortable with that structure and the attorney asked me “Why?” before going on a rant where he yelled at me, after which I posed a very calm, simple question, “Why not?”
When the contractual chess matches and debates become overwhelming, the entrepreneur is left beaten down and discouraged. This isn’t good for personal health (which we entrepreneurs all acquiesced to before we started), and it’s not good for business either. Your team and your business need you to be strong and present. The best way to do that is to be at peace with making your own market.
You have created your value proposition, and if investors want to participate, they will.
If you provide a service or product that didn’t exist yesterday, be thoughtful and calculated with deciding what you want to charge and then charge that price. No, not everyone will be happy about it and many will beat you up for it. If you are raising capital, create an opportunity for your investors to realize a windfall when you are successful and create alignment between both their interests and yours. Present the opportunity and let them take it or leave it. I don’t know if there has ever been an investor in an early stage business who has responded to an offering with “Looks perfect. Here is my investment.”
If you weren’t someone who looked at the world with a “why not?” attitude, you would not be an entrepreneur in the first place. Remind yourself that this product, service, and opportunity exists because you were willing to do something no one else was willing to do, and in the same way you are creating your unique business, you are creating your own market.