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March 2013

Supplying the Pot Rush

By Universe


In a previous post I alluded to the three key business philosophies that I see as ideal business models. They aren’t necessarily startup related. In fact, in most cases business that embody these models aren’t tech related at all. They are simply three common business models I’ve seen to be hugely successful. They are:

  1. Middle a Transaction
  2. Sell a System
  3. Supply the Gold Rush



The Prop 64 Gold Rush

The third model, “Supply the Gold Rush”, came to mind this week when I had the pleasure of meeting two successful medical marijuana growers. Despite my twitter handle being @Stoneybaby, I don’t actually partake in the bud. But I am a curious sort of guy, and talked with them extensively about their business. It seems that everyone in their line of work is just scraping by on razor-thin margins, anxiously awaiting the regulations that will allow them to sell pot for recreational use.

One interesting tidbit I picked up was that the price of pot fell from $4000/lb to $1800/lb. This drastic drop in price took place from the time that medicinal marijuana was legalized in Colorado until now. Simply put, too many people saw the opportunity to sell pot legally, saturated a market capped by law, and drove down prices.

When the recreational regulations are finalized and passed, there will be a second gold (green?) rush. Prices will initially skyrocket as supply can’t match demand, which will invite a new wave of growers who will eventually saturate the market, and eventually drive prices back to down to equilibrium. It’s Economics 101, but it’s not the business I want to be in.

Levi Strauss & Waste Farmers

When I think of gold rush, the second thing I think of is Levi Strauss. His family already had a dry-goods business in St. Louis, and seeing an opportunity, he moved to San Francisco to open a branch to serve the growing market. Moving to a growth market is a smart business move in any era.

In our era, I see a business like Waste Farmers as being the next Levi Strauss. Waste Farmers takes food waste from restaurants in the Denver area, composts it, and makes some damn fine soil. If there was any business to supply the coming Colorado marijuana gold rush, it’s the soil business.

And so while I wish my new-found grower friends all the success in the world, I don’t want to be in the pot growing/selling business; it’s just another gold rush. The business I want to be in is the one supplying the goods and services to the growers.

Why compete in what’s sure to be an overly-zealous and quickly-crowded market? That’s the modern equivalent of panning for gold. Instead, I say sell jeans to the miners, or soil to the growers. Supply the Gold/Pot Rush.