Every couple of weeks I get a question from an analyst or investor trying to figure out why certain cannabis companies are succeeding and others are not. Our conversations always circle around the same questions: Not enough capital? Quality of management? Technical expertise?
Those are important questions, but there’s an indelible fourth quality I learned about twenty years ago when I consulted for and tried to buy alternative newspapers: Funkiness.
For me the story really began with the founder of the Madison Isthmus, Vince O’Hern. By the time I’d met him, twenty-five years after he’d founded the paper, he was a greying but solidly-built hirsute man who tended to squint one eye when he talked with a gruff voice. For the growing Wisconsin college town that was also the state capital and home to a burgeoning biotech sector, O’Hern’s Isthmus was the center of arts, music, and everything that didn’t quite fit into regular society.
O’Hern had come to be a mentor of sorts to me, back in the early aughts. I was a business school student who had become interested in alternative newspapers. I’d come to learn, through Vince’s tutelage and research of my own, that most “alts”, as they were called, were making 20-40% margins, and were mostly run by aging hippies wondering when they could sell their papers and retire. Although many have died out since then, at one time there were about 150 alts sprinkled across the country.
The paper was started as a side project by O’Hern in the 1970’s, when he was driving taxis by day and tending bar at a questionable joint in downtown Madison named the Go-Go Lounge. He sold ads to the characters he met in the Lounge, he told me, delivered stacks of papers from his taxi, and edited the paper in whatever spare time he had. The Isthmus, named after the spit of land between two lakes where Madison’s downtown resides, was born in a funky environment with a certain whiff of illegality.
As I get to know the cannabis business, I’m constantly reminded of alternative weeklies. Full of character, the cannabis business is most interesting and energizing when its funk splays itself out. The funkiness has an appeal that plenty of people want to pay money for, but it’s a delicate thing: If you try to box it up too much, the funk turns sour and loses its charm.
Publications like the Chicago Reader, Village Voice, and L.A. Weekly all occupied the same “funky” space with thick classified listings, detailed arts and entertainment sections, long leftist “investigative” screeds, and thinly veiled escort ads in the back. They were universally wild, fun, uncontrollable publications that made their owners scads of money. Most of the ones I met were visibly surprised to be doing so well, and when a partner and I started meeting with some owners to discuss purchasing their publications, they often guiltily handed over their books, half apologizing for how much money they made.
But in the early naughts, things were beginning to change for alts. Some of the owners had sold to chains, and some of the owners had begun to form chains of alts of their own. Craigslist hadn’t wiped out classified sections yet, and the internet’s deaggregation of newspaper content was still half a decade away, so the newspaper chains saw alts’ fat profits and wanted in, counting on the past to be an indication of future performance, and that the next twenty years of returns would be as good as the last twenty.
My partner and I never closed a sale, but watching from the sidelines, we saw the chain takeovers of alts start to go sideways. Newly installed by-the-book managers who struggled to improve cash conversion cycles, rationalize freelance pay schedules, and implement HR policy handbooks were often stymied by their own employees who were put off by the new structures. Few people quit, but they didn’t work as hard. They stopped doing their best work, told an advertiser or two to bug off, threw tantrums, and often got fired.
Avid readers of alts – and research by me and others showed the core alt readership were people who had not missed an issue for ten or more years – began to drop off. The publications no longer scratched their itch, and as internet-based content grew, their loyalty to alts quickly waned. Then, after Craigslist finished hoovering up classifieds around 2005, and display advertising sales crashed through the basement in 2008, most alts had already lost their soul and core readership. Their lights began to wink out, one by one. Today many alts like Village Voice, L.A. Weekly, and Chicago Reader are gone or on life support. The Isthmus is still around, but a shadow of what it once was.
Unlike alt newspapers in the early aughts, today’s cannabis business is on a clear trajectory to big money. Last month in Illinois, recreational cannabis sales had a single one month increase of 22%, after months of steady increases. But when people ask me why some cannabis companies are doing better than others, I now tell them it’s the ones that embrace the funkiness. Their company cultures are a bit looser, a lot friendlier, and probably somewhat unpredictable.
I can’t say for sure if I’m right about this, but I keep feeling like I’ve seen this movie before. It’s the funky ones that are going to keep the cannabis business interesting and draw customers back again and again.