When you price your product "high" you will get undercut by bootleggers.
No, this is not a photo of a jewelry store or high-end optician!
Suppose you went to a liquor store to get some lite beer for your friends and maybe a bottle of inexpensive gin to make Gin and Tonics for the wife. You get there and it is a beautiful store - all nicely appointed with custom cabinets and countertops and employees in matching suits. You look around and realize they have nothing but high-end liquor.
In the bourbon department, nothing less than $50 for a fifth. All the Scotches are single-malt and a hundred bucks a bottle. The gin they have are "artisanal" and the vodkas are all triple distilled and filtered high-end brand-names. You go to the beer section and realize everything offered is an expensive microbrew in a funny bottle costing $10 (per bottle!). Similarly, the wine section is staffed by a sommelier who looks down his nose at you when you ask if there is "anything cheaper" than a $250 bottle of red.
I mean, it is a classy place to be sure, and you can appreciate the quality of the goods - and wish you could afford them! But this is out of your league, so you slowly walk away. There have to be other options - and there are. Discount liquor stores, grocery stores, even illegal moonshine (yes, it still exists today). If the market was nothing but "high end" liquors, well, there would be a lot of moonshine to be had.
And thus is the problem for marijuana dispensaries. I've been to a few, and some of them are like jewelry stores - with expensive glass display cases, staff wearing suits (for the men) or evening dresses (for the women) and small jars or containers of potent pot selling for pretty staggering sums.
There are others that are different, of course. In Haines, Alaska, we went to a tiny place which was just one display case and a guy in the backroom who looked like Dr. Johnny Fever from WKRP. He came out of the back room exhaling smoke. But even then, the prices were pretty "high" if you'll pardon the pun.
As a result of these high prices, there is still a thriving "black market" for marijuana, even in States where it is legal. And as a result, many marijuana dispensaries are struggling to get by. Their plight isn't just expensive facilities, high staff wages (and huge staffs at many of them!) but also the unique situation they are in legally - often unable to deposit funds in bank accounts because the drug is still illegal at the Federal level. Large sums of cash laying around mean that they have to hire security guards and often are robbed or burgled as a result. It still is a risky business, even though it is legal.
Overall, the market overbuilt these fancy dispensaries and over-sold them as well, to investors. An major "chain" of dispensaries, which touted it was going to be the "Apple store" of marijuana dispensaries, is now facing bankruptcy. Investors rushed to invest in marijuana dispensaries, thinking this had to be "The Next Big Thing!" when in fact, it was just a thing - a commodity business with a lot of competition, legal and illegal, and a business of margins as any mercantile business usually is.
Does this mean the end of legal marijuana? Only if DeSantis is elected President. Yet how many MAGA stoners will actually vote for him? More than you think. But seriously, presuming marijuana remains legal in at least a few States, the business will continue. Some dispensaries will go bankrupt, to be sure - whether bankruptcy laws will protect them remains to be seen (as a State Law claim, I guess it would work). Unless they reorganize under Chapter 11, the dispensary may go bust, and some entrepreneur will buy the assets and start over again - this time without the staggering debt and overhead of a fancy building and appointments, perhaps.
Quite frankly, growing up as a stoner, I never saw the point of these fancy dispensaries. Perhaps the new model can be a showroom with some hippie dude selling unmarked baggies of weed behind a prop dumpster. That might be more authentic.
The insolvency of these high-end (pardon the pun) marijuana dispensaries illustrates the fallacy of trying to "get in on the ground floor!" of "The Next Big Thing!" as you will likely be wiped out as a small investor.
Just to recap, this is how the scheme works - with any "Next Big Thing!" investment hyped on the Internet.
First, someone comes up with an idea - it needn't be a good idea, either, but one that sounds good. It could be something as stupid as delivering food, for example. Just call it "tech" though!
Second, venture capitalists swoop in and fund the idea, taking 80% or more of the equity, leaving the remainder to the "founders". The company is privately held at this point.
Third, the venture capitalists "loan" money to the company, because it has a negative cash-flow. However, the interest payments on this debt insure the company will always have a negative cash-flow.
Fourth, they hype the crap out of the idea and then hype the crap out of the company.
Fifth, they do an IPO and sell stock - about 5% of the company, if that. Stupid small retail investors throw trivial amounts of money at the stock - trivial to the venture capitalists, but dear to the small investor. This props up the price of the stock, allowing the VC's to cash out - and sometimes even the founders as well!
Sixth, the company flounders about for a few years, never making money, or if it does make money, never justifying the outrageous share price and P/E ratio.
Seventh, the company goes bankrupt in Chapter 11. The shareholders are wiped out (share price =$0) and those small retail investors lose it all. However, the loan debt held by the Venture Capitalists is converted to an equity interest (stock) and they now own the whole damn company!
Eighth, once the company is re-established, they go back to step four and cash out yet again. In some instances, this has been done more than once - taking a company private, taking it public, going bankrupt, going private, and back public again. The real winners are the people with the money.
As you can see, investing in "The Next Big Thing!" stocks is not only risky, it is foolhardy. These sort of "investments" are sold based on hype and the desire by the small investor to "beat the market." The market beats the crap out of the small investor.
There is no shortage of idiot small retail investors, either. Consider this guy, who is supposedly a journalist but looks like a parody of a fedora-wearing "neck beard" incel. Good Day, M'Lady! This quote in the article jumped out at me and made me sad:
Frankly, beyond the fifty bucks I gambled away on bitcoin, I have no other investments. I'm not big on gambling. Since I don't have confidence in my ability to spot a sure thing, I've avoided investing in stocks and crypto altogether.
