The Unfair Investing Advantage that Led to Millions? (And a cannabis riff)
Find the next wave.. and how to get into this burgeoning industry when you don't have much green?
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The Unfair Advantage that Led to Millions.
Your How to Guide to Finding Yours…
First, being early can be a super power. When people ask you, “What? Why would you do that?” You just may be on to something my friend.
A caveat. You don’t need to be brilliant. I’m no genius. But I have made a few nickles to rub together:
Entered into ETFs in 2008 when assets were $531B; today $3.4T+. (540% increase)
Entered Latin America in 2010 it was at $1.5T assets; now $3T+. (100% increase)
Entered cannabis in 2014 US market was $3.5B; now it’s $20B+. (471% increase)
I’ll be early (not 1st but early) in newsletters and the new advent of media too.
Here’s where I stop being obnoxious (someone call @vcbrags already), and say how this is useful to you. When you come to the terrifying realization taht you aren’t innately more intelligent than anyone else (aka me), you look differently at the market. You see, I know I’ll never create the next Tesla. I still don’t really understand blockchain tech at a visceral level. I certainly can’t figure out quantum computing. Coding? I barely can get my Zoom to work.
AND THAT IS OK. Because instead of trying to create the next unicorn, I think like a surfer. I am not out trying to manufacture a wave. Let the smart nerds do that. I am simply in search of the next swell.
One of the single best things you can do as an investor, employee, builder or entrepreneur is look at where the market is going and meet it there. You don’t have to predict the future you just have to know that momentum is hard to begin but importantly, it’s damn hard to stop.
If you are less fearful than the other guys, if you are willing to take early risk and if you are not complacent and static, you can ride swells all day while most people stay wading in shallow water waiting for the tide to change or a storm to propel them.
Truth: MOST PEOPLE FEAR CHANGE. BEAT THAT and conquer.
Your Lesson Today: Where can you look at the world today and see that it is moving towards something… then meet it there?
THE GREEN WAVE
15 Ways to Profit off the Cannabis w/ Little $
First let me get out my crystal ball (that’s always dangerous), I believe:
Cannabis will have banking laws passed THIS year
Cannabis will be legal within the next 5 years across the US
Those who have exposure will profit handsomely
Here’s the rub, it’s actually not that easy for people to get into the industry. If you want to invest you can go into a investment firm (like mine - HMU if you’re accredited and have interest) but usually the check sizes are bigger and the timeline is long. If you want to start a business the barriers to entry are HIGH (get it).
But look at the growth. It’s wild.
So today during the week of 4/20 we’re breaking down how to access the industry, the contrarian way.
First let me tell you what I wouldn’t do:
#1 Don’t Open a Dispensary
Everyone always thinks buying licenses, and opening dispensaries. BUT the numbers might surprise you.
To open a dispensary in a 2nd-3rd tier city is a $1M startup cost. In a 1st tier city it’s even more. Just the application process can be extremely pricey.
You can do it and profit wildly but I wouldn’t start there.
#2 Pure Cultivation Is A Commodity
McDonalds makes the money, not the potato farmers. Whether you think that’s fair or not is one thing, the truth is that it is the case. 90% of margin IMHO will move away from growers. There’s still money to made but it’s not a wave. Don’t get stuck in a shrinking pond.
What I Would Do:
How to get into cannabis (w/o touching the plant) as a scrappy founder w/o much $:
#1 Distribution - You don't have to grow it, just ship it.
Southern Glazers is a $20Billion+ ARR company - they dominate alcohol distribution. They are the 17th largest private company in the US. The Chaplin family (owners) are worth a cool $1.2Billion+ as of 2019. Think about this, they create nothing. Except a network to get booze to your bars and doors. They also cover 90% of the drinking age population. This is one industry where it pays to have a monopoly. Low margins big scale.
You think that’s just the lucky Glazers? Nope.
UNFI happens to dominate CPG distribution. They are a $20B company serving 250k stores across the food supply chain. The CEO isn't doing to badly either. Brings in about $7-8Million a year. I see you Steven.
What about Cannabis? No nationwide distributors.
The biggest players are HERBL and KIVA Sales that each service less than 1,000 stores and mostly in one state. I'd love to build a distribution company or come and buy up all the mom and pops and create the next UNFI. The business model already exists. You can’t cross state lines at this time BUT you can share back office, logistics, home office head count etc.
#2 Billboards to Buying Online
The biggest ways brands advertise right now are through organic traffic optimizing and yes, Billboards. A friend of mine runs Alchemy Media and I about fell out of my seat when he told me they were doing $20M just on cannabis billboards in CA.
I'd rent out space on billboards and arbitrage them to cannabis companies for double the price. The billboard industry has 50% margins, before depreciation, taxes, amortization and interest. Aka you get tax breaks. I like those. Unlike real estate they take 7-10 years to pay back the principle cost instead of 30. Ain’t bad. Regular billboards you can charge $5-200k per billboard. In cannabis you get premium prices.
I’m thinking of doing an entire bilboard biz breakdown. Whatcha think? Comment below if you want the biz plan.
Then I'd build out an online PPC and ads biz to service first the ancillary companies that can advertise online.
#3 Try this weed anyone?
In-store demonstration company.
Getting on store shelves is hard. In cannabis 40-60% of dispensaries are all in-house products, aka the store's products. So shelf space is harder to find than a Gen Z’er who doesn’t mention Dodgecoin.
If I wanted a toe hold in the industry cheap. I'd start an in-store demo company. It would cost me the amount it takes to build a powerpoint, Squarespace website and go pitch a few dispensaries and/or brands. Aka a Snickers and a couple nickles.
I’d presell them on my brilliant team of brand ambassadors (aka my friends or little brothers friends, or local sorority college students) and go to companies offering to do pop-ups at dispensaries. Could get crazy, get creative, and even get bought by a company like CDS, a 30 yr old company who makes $200M rev a year sampling. Markets are just opening up to the public, it’s probably interesting timing.
#4 Cannabis Influencer Company
There's no way to advertise online (legally and without risk) so influencers are hugely important. PROBLEM, so many won't do anything with weed. Start an influencer agency and bring them to companies. Agency businesses are easy to pop-up, cheap to start and you just take a 20% fee for engagements like an agent and then an overall fee for creating campaigns etc. There are a few that exist already but their design and UX are badddd.
#5 More sips less smokes
One of my favorite port co's is CANN - microdose THC sparkling flavored seltzer. All the cool kids drinking it, including nvestors like Paltrow, Tov-lo, Casey Neistad etc. It's perfect for the crowd that wants a buzz but no calories or hangovers. Aka me.
I think they are going to absolutely dominate and eviscerate the chardonnay mom crowd, and the sober curious gen z/millennials. Sales are up 200% YOY. I'd compete. Add one that has adaptogens or caffeine to it (so you could be kinda high but also alert).
#6 Make the First Time Buying Experience Less Awful
Right now there's Leafly which helps users figure out what to buy, but it's overwhelming, i.e. I REALLY do not need to know the lineage and growing atmosphere for a particular flower. A centralized app that's like a Vivino or a cellar tracker I'd personally use bc I can't ever remember what strains I liked, what brands, what THC %. And I'm in the biz. (If anyone wants to start this - I'll fund it for myself).
Question everything and maybe the grass is greener over here!
Codie & the Contrarian Team
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