High-profile founders leaving US marijuana companies signals new phase for industry

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cannabis, High-profile founders leaving US marijuana companies signals new phase for industry

A number of high-profile founders of U.S.-based cannabis companies have stepped down in the past several weeks amid continuing struggles to move their firms toward profitability. 

Industry experts suggest this is a sign of maturation among marijuana businesses as investors demand they focus more on profits than raising capital and relying on previously booming stock prices. That focus is common in mainstream industries. 

As investors push for more accountability and a quicker path to eventual profitability, seasoned executives from outside cannabis are entering the industry to help shape the future – and that leaves less room for original company founders who might not have the skill sets to oversee such an evolution.

Investors and entrepreneurs alike are discovering a big difference between starting a company and then managing it as it becomes more complex in terms of finances and structure.

“Many entrepreneurs are great at taking companies from concept to maybe $10 million or $50 million of sales,” said Craig Behnke, equity analyst at Marijuana Business Daily‘s Investor Intelligence.

“However, those entrepreneurs may not be as strong, with the myriad skills necessary, to take a company from $50 million to $500 million of sales.”

Here’s a roundup of some founders who recently exited their U.S. marijuana firms:

  • Adam Bierman of Los Angeles-based multistate operator MedMen Enterprises, in January.
  • Jose Hidalgo of Cansortium, a medical marijuana dispensary operator in Miami, in February.
  • Andy Williams, co-founder of Denver-based Medicine Man Technologies, in February.
  • Joe Caltabiano, co-founder and president of Chicago-based Cresco Labs, in March.

Entrepreneurs who might be questioning their roles also have to work out themselves if they are still a fit in the company they started or whether they can better funnel their skills elsewhere.

In this way, the marijuana industry is similar to other startups in mainstream industries as founders battle with the decision to give up control when conflicts emerge and as they become more accountable to investors.

For example, a 2008 Harvard Business Review report showed that less than 25% of startup companies in multiple industries still had their founder at the helm at the time of a company’s initial public offering. 

Depressed stock prices playing a part

Such changeover at the top comes amid an increasingly difficult capital environment for publicly traded cannabis companies, and that’s only become exacerbated by the coronavirus crisis.

With capital increasingly scarce and debt transactions only in reality available to bigger companies with large resources, the departure of cannabis founders is a trend that’s likely to continue.

Even a well-resourced company such as Cresco said goodbye to Caltabiano.

Cresco’s stock price on the Canadian Securities Exchange has declined from 11.14 Canadian dollars ($7.69) a year ago to about CA$3.16 currently.

The choice to make a change came from Caltabiano as he spoke of differing visions for the baby he and CEO Charlie Bachtell helped grow.

And Cresco’s three-sentence media release the following day suggested the company was surprised by his decision.

Caltabiano told Marijuana Business Daily it was his decision to resign and that the move had “caught some people off guard.”

But Caltabiano also spoke of the role the difficult capital environment played in his departure.

“Stock prices can certainly dictate the future of founders and executives in a very material way,” he said.

“There will be some tough capital markets in the short term, and there certainly could be disruption at the highest level of a lot of organizations.”

Fall or pushed?

For those outside a company, speculation can run rampant when founders resign or are asked to leave.

Often, it can mark a sign of amicable departures if such founders remain with the company they started in some role, albeit reduced.

For example, MedMen’s Bierman is, for now, still on the company’s board.

Medicine Man Technologies’ Williams, who founded the company with his brother with a $150,000 check from his stepfather, resigned as both an operational head and board member on Feb. 25, according to an SEC filing – which also noted the departure was not the result of a disagreement.

Medicine Man Technologies is now run by a management team with ties to Dye Capital.

Justin Dye, founder of the Florida-based private equity group, helped invest an initial $18.2 million in Medicine Man Technologies and is now the Denver company’s CEO and chair.

What is certain, however, is that entrepreneurs need to look inside themselves and decide on a good time to leave before they could potentially become a liability to the company.

“Most entrepreneurs and company founders ultimately face the day when they have to step aside or delegate critical aspects of running the business to senior managers with specific areas of expertise,” Behnke noted.

“The best entrepreneurs recognize that reality well before their limitations negatively impact their business and shareholder value.”

Former Cresco President Caltabiano seems to have found the right time and is looking forward to his next venture, which he said will fall in the cannabis space.

“You’ll see me involved in more of a startup or companies that don’t have as solid of a footing as Cresco,” he said.

“I’ll help with their strategic vision and a capital plan and help them achieve their success. I felt like it was a good time to move on.”

Nick Thomas can be reached at nickt@mjbizdaily.com

Margaret Jackson and Matt Lamers contributed to this report.

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