Several years ago, right after Washington and Colorado voted to legalize recreational marijuana, I had a meeting with some of the attorneys at the Garvey Shubert Law Firm (GSB Law) in Seattle. We were discussing the best ways to structure marijuana businesses and how to protect owners from possible problems that could arise.
Hal Snow Jr., widely regarded as an expert in tax and estate law, did most of the talking to our small group. A lot of the discussion centered around legal structures and how best to set up a business, while simultaneously insulating owners from possible liabilities, Hal also spoke in plain English about his concerns with the way the states’ rules (and those of the federal government) might play out.
Two things from Hal’s presentation stood out at the time and still resonate today. The first was that under current federal and state law, a legal marijuana business was not going to be an easy path to riches. In short, state taxes, combined with federal IRS rules, meant that profits were likely going to be small or non-existent for several years. The second thing I recall was his observation that “pioneers get slaughtered and settlers get rich.”
It’s an age-old saying, of course, but one that still hold true today. When you think about almost any emerging new industry, the first businesses in are the ones who blaze a path, but rarely end up on top. Microsoft, Costco, Starbucks and Amazon are all enormously successful Seattle companies. Each dominates a large industry, and all four are relatively young companies. What do they all have in common? Smart CEOs, who, strictly speaking, didn’t invent the businesses they’re in, but carefully and wisely watched others (the pioneers), and learned from their mistakes.
I have several good friends who started at Microsoft in the 1980s and made it to the senior VP level. All of them have told me that Bill Gates, while undoubtedly brilliant, was also a master at hiring talented managers and seeing the potential of new products introduced by other businesses before they knew how to sell or market them well. Gates was a great programmer, he was also a really astute business manager who spent a great deal of time making sure he hired people who could learn from others and capitalize on the mistakes they made.
When Washington and Colorado first legalized recreational marijuana, a Gold Rush mentality prevailed. I met dozens of business applicants and owners I’d classify as “pioneers.” They were excited to get into this new industry and convinced it was going to be a quick path to riches. It hasn’t been easy for many of them, and in the end, most of the people who had little more than dreams have been disappointed. On the other hand, the companies that had a real business plan, good finances and made smart hires with real experience in industries other than black/gray market marijuana have often done quite well. Hal was dead on in his analysis of the cannabis industry and its potential.
With several new states about to follow the path Washington and Colorado blazed, my advice is this: Forget the “get rich quick” folks trying to sell you on investments that seem too good to be true; take it slow; make smart hires (hire slow, fire fast); have both a good lawyer and a CPA review your business plan; make sure you have adequate capital (usually double what you think you’ll need); and learn from the mistakes made in the pioneer states.
Greg James
Publisher
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