CANNAINVESTOR Magazine September / October 2016 - Page 50

The challenges of managing a business where government regulations are written ‘on the fly’ and may change at a moments notice are similar to what I experienced working in China twenty years ago. This familiarity with the fickle and unpredictable business environment in emerging markets provided me with a unique insight into the new cannabis industry.

Emerging markets are risky, but they often provide investors with tremendous opportunities. There are advantages to being on the ground floor of the cannabis industry. Largely because of the illegality of the industry at the federal level, only a few major corporations have started to stake a claim in this new industry. This allows an opening for today’s start-ups and early-stage companies to become tomorrow’s household names.

In some U.S. states, those that I refer to as “advanced cannabis states,” most of which are in the western part of the country, the industry is evolving quickly. However, with rapid expansion comes a host of issues. For example, in Colorado in 2013, when the state only allowed medical cannabis, it was questionable whether anyone in Colorado’s industry was operating profitably. Very few cannabis-related businesses had verifiable track records. Financial statements were rarely available, and internal financial controls were essentially non-existent because of the lack of access to the banking system.

In many states that have relatively recent medical cannabis programs, the industry is at a very early stage. These states include Illinois, Massachusetts, New York, New Jersey, Connecticut, Rhode Island, Pennsylvania, Florida, and Maryland. Many cannabis entrepreneurs in these states are trying to implement business plans or strategies that in other cases have failed in the advanced cannabis states. These entrepreneurs have many of the same challenges that similar cannabis businesses had in Colorado, Oregon, Washington or Nevada a few years ago. If a business model didn’t work in Colorado or Washington, it doesn’t necessarily doom a similar business direction in Maryland or Illinois, but it should serve as a warning for investors.

The number of cannabis business license applications recently submitted for growing, processing and selling cannabis in just one state, Arizona, is indicative of the perception that the growing, processing and sale of cannabis is a sure thing. Arizona’s Department of Health Services recently indicated that it processed 750 applications for licenses and that it intended to award only 31 additional dispensary licenses, in addition to the 92 dispensaries that were currently in operation.