By Doug Poretz Basic Premise #1:  Fundamental changes in the way an industry is structured often ignite explosive and very disruptive changes in the... Want to Envision The Future of The Cannabis Industry? Just Look at The Radio Business

By Doug Poretz

Basic Premise #1:  Fundamental changes in the way an industry is structured often ignite explosive and very disruptive changes in the very nature of that industry for all time.

Basic Premise #2: Fundamental changes are going to come to the cannabis industry. Whereas it’s still highly speculative to predict the timing and exact shape of these changes, it’s a great bet that there will be legislative and regulatory changes, tax changes, banking changes, regulatory changes and other transformations in the way the industry is structured.  These will not be changes on the edges or more cosmetic than substantive.  These changes will modify the game.

Consequential Question: Can we find a precedent that would give us some solid hints of what could happen when structural issues such as banking are no longer crippling the growth of our industry?  Let’s look at the radio broadcasting industry– it may well be the template we will follow.

Changes in federal law and regulations led to the disruption of the radio industry –and the same type of changes will shock the cannabis industry.

In the case of radio, whereas some station owners were local businesses, a number of deep pocket owners for a long time lusted after owning more properties in more markets. It took a long time, a lot of lobbying, and a change in political philosophy, but by the end of the 1990s (and after one of the most expensive lobbying campaigns in history) the entire game changed when “duopolies” became possible. That meant broadcasters could for the first time own more properties in more markets. Virtually as soon as these changes became realities, the industry began to transform itself as the big owners and investors vented their pent-up demand to amass large groups of stations. Whereas this transformation might have been nauseating to those who had a passion for local radio that was actually locally owned and oriented, those in the business for the money had a completely different experience. Enterprise valuations skyrocketed so that those being acquired (and their investors) were thrilled. In the one year following the adoption of the 1996 Telecommunications Act that led to the radio industry fundamental changes, 2,045 radio stations were sold for a net value of $13.6 billion.  Those who were on the receiving end of a big check gave the structural changes to the industry nary a thought other than ain’t capitalism grand.

A change in ownership?  Consolidation of small players to create industry behemoths?  Is that really a big deal?

Let’s look at what consolidation meant to the radio industry.  From 1995 to 2005, the number of radio station owners declined from 6,600 to 4,400.  And the acquisition mania has continued at a remarkable pace. For example, in just four years from its launch in 2010 through 2014, Townsquare Media was able to own 312 stations by consolidating stations in midsize markets. Today, three commercial groups control at least one-third of all radio industry revenues. Of the 4,992 total stations in 268 radio markets, almost half are now owned by a company owning three or more stations in the same market.

Should you be a fan of consolidation in the cannabis industry?

That depends on your point of view:  Are you in the cannabis industry because of your passion for the plant combined with a desire to be successful in business terms … or because you want to make a ton of money and, oh yeah, you have a passion for the plant too?  It depends as well on whether you want to keep stumbling with the lobbying effort of a fragmented industry that has very little political clout (relative to its size) to get laws and regulations changed in the way and on the timing that benefit the industry.

So? 

Just about each of the players and observers of the cannabis business to whom I speak every day has an opinion as to whether the industry consolidation we’re starting to see is a good thing or a bad thing.  I’m not certain there is a consensus as to that at all.  But I am pretty certain that it really doesn’t matter if there is a consensus or not. It doesn’t really matter if it’s going to be a good thing or a bad thing because it is a certain thing. Consolidation and very basic change are coming to the cannabis industry, ultimately on a global basis.  It’s as certain as consolidation in the radio industry was a certainty after duopolies were allowed in the broadcast agency.

Don’t waste your time worrying about when all this change will come to the cannabis industry. 

Rather, focus on trying to understand what’s happening to our industry and how you can best ride the tide of change that is sure to come (and avoid being drowned by it).  Make this a priority sooner rather than later.  And prepare for more disruption rather than less, because that’s very likely what you are going to confront.

 

MJ Shareholders avatar

MJ Shareholders

MJShareholders.com is the largest dedicated financial network and leading corporate communications firm serving the legal cannabis industry. Our network aims to connect public marijuana companies with these focused cannabis audiences across the US and Canada that are critical for growth: Short and long term cannabis investors Active funding sources Mainstream media Business leaders Cannabis consumers

No comments so far.

Be first to leave comment below.




( ) ( ) ( ) ( ) ( ) ( ) ( ) ( )