“I’ve done tons of interviews, but I’ve never been asked that question before,” replied J. Smoke Wallin, a builder of businesses in several industries.
Because of his myriad successes in diverse categories like the food and beverage, hospitality, and technology arenas, Maximum Yield wanted his thoughts on whether entrepreneurs were born or made.
“I think there’s probably an innate yearning to do the next thing that drives serial entrepreneurs, probably something that’s part of their DNA in a way. But you don’t become a successful entrepreneur just by having a yearning — you become a hero by actually accomplishing things. There’s a lot of people who have the aspiration, but fewer that actually end up doing it.”
“This is a really interesting and dynamic time in both the CBD and THC industries,” he says. “Those who are thusly engaged need to appreciate the moment because it’s the process, not necessarily the destination itself, but the journey and where we are on that trip is part of an evolution with lots of momentum as well as plenty of headwinds. There are still incredible challenges to come in both the hemp and THC sides of the industry, but this is something that is fundamentally changing our society and everyone involved in it is playing a part to make it happen.”
Finding a Production Balance
So, at this juncture, are there too many or too few growers and processors? “Yes,” he says.
“There are places where there’s too many; too much production. If you open the spigot and everybody jumps in at once, like what happened after the Farm Bill passed in 2018, there wasn’t enough downstream processing as a path to market. In the cannabis industry, where flower is very precious, there are places with limited licensing and not enough growing, while other markets are very open, like Canada, where there is overcapacity because there’s so much capital and so many people involved.
“Momentum comes in step functions if you will — you legalize something, you open up a market, and lots of people jump in. It takes years to develop, then, all of a sudden, a bunch of them come online and are available. One minute you have nothing, never enough product, and the next minute you have an overabundance of a product be it cannabis or hemp. Then it becomes a matter of supply and demand, a scenario of creative destruction where some businesses flourish and others close because they can’t make it in that environment.”
The Role of Government
With enough ready-made stumbling blocks along the way, we wondered if government regulations were one of the impediments to growth. “Actually, no,” he responded.
“Government regulations are definitely a huge factor in every micro-market because every state is a different market. But some places have an abundance of growers and flower in spite of the federal government and then there are other places just starting to license. Some markets feature institutional players, large pharma, the alcohol industry, tobacco ties that are upgrading, and that brings in institutional capital flow. A lot of resources are going to hit the market when Schedule One goes away, which it will eventually.”
Okay, what about including marijuana under the Schedule One drug category?
“It makes no sense to be there, and it never has made sense from day one. It really had less to do with the plant and more to do with politics and it makes things more complicated. It makes raising capital and banking more difficult, although it doesn’t deter entrepreneurs willing to take calculated risks around it. I’m hoping that in five years we won’t be having this conversation about this aspect of cannabis.”
Such a redesignation probably isn’t imminent, however. “The only reason we won’t get rid of Schedule One this year is because it’s political. The guys who run our government use donations from both sides as their jet fuel to stay in Congress and they can get more money if they slow-walk any progress, either in support of redesignation or in opposition to it.”
Brand Recognition Takes Time
Building a brand in this kind of marketplace is an uphill climb. According to Wallin, who made his earlier mark in the wine and spirits beverage industry, “our rule of thumb is it takes a decade to build a real brand, although there’s a lightning-in-a-bottle case every once in a while. Add that to the fragmented regulatory environment where every state is its own world. Despite these negatives, the hemp CBD space — cannabis without THC — seems to be the right path to follow to build up national recognition. We’re building brands through traditional channels via CBD and once full federal legalization arrives, those brands that have built up a following in the CBD space will be the big winners in the overall cannabis space.”
Never one to be satisfied with status quo, Wallin looks ahead and invites others to join him as the industry solidifies. “Some think they’ve missed the boat or are late to the game because there’s some big players already established. I think it’s still early days in this effort, like we’re in spring training getting ready for the actual season to start. So, I encourage anyone who has aspirations of joining in to not be discouraged. Have a good business plan. Hire the right team. Amass enough capital. It may sound counterintuitive for me to encourage others because I’m already in this space, but I want more people to join in if they’re so inspired.”