How to Become an Entrepreneur – The LP Model versus Free & Fair Markets

There many different types of entrepreneurship, but I want to focus on venture capitalists in the cannabis industry.

A venture capitalist while looking to make profits by finding growers to hire, may go out and find some growers. The growers themselves are capable of surviving without a venture capitalist to finance them, but the VC has the capital to put their production on par with the Licensed Producers. This form of bottom-up entrepreneurship allows for more liberty than top-down state control that requires venture capitalists apply to Health Canada, invest a lot of money to build a large facility, and comply with inane rules all before any cannabis can actually be grown or sold. In contrast, venture capitalists seeking out underground farmers of the older regime (many protected by the Allard injunction) don’t have to comply with a set of rules and standards written by bureaucrats in Ottawa. Their only objective is to profit, and the only way to profit in a free and fair market is provide consumers with what they want.

The thing is, there is no guaranteed path to success, and there’s plenty of risk involved. For some entrepreneurs, developing the “oil sands” of BC may mean different ideas need to be put into place simultaneously, with only a fraction of them working out in the long run. That’s the inherent risk associated with capitalism, but with risk comes opportunity. All the government has done is create conditions for a few mega-corporations to drive out their entrepreneur competitors and secure their market share. This gives an illusion of stability, but in the long-run, this top-down control will fail to meet any of its objectives. For examples throughout history, see the former Soviet Union or how the Chinese Communists were forced to open their markets. It is in the uncertainty of markets and in the risks that entrepreneurs take (with their own property) where opportunities for wealth are discovered.

If Canada adopted a free and fair market in the cannabis industry, if LPs had to compete with the original cannabis farmers and retail owners on a level playing field, it would become very clear which form of entrepreneur is superior.

In bottom-up entrepreneurship there are initially no shareholders, no contractual obligations, and no paperwork that needs to be sent to a government bureau for their records – unless it has already arisen between two or more consenting parties. That’s the key here. Consensual adult decisions are the bedrock of a free society, and most people recognize that, until it comes to the uncertainty of a free and fair market. Like war propaganda that requires us to hate and want to kill people we’ve never met, anti-capitalist propaganda has us fearing the mechanisms in which entrepreneurs discover opportunities for wealth. How successful would Colorado’s recreational cannabis market have been if, like in Canada, the government limited the 400-plus commercial growers to 25, all in the name of public health and safety? And won’t somebody please think of the children?

BC’s “wild west” in the cannabis industry is one of the last free and fair markets in Canada. As gangs seem less interested in “soft-drugs” and are pulling out as venture capitalists roll in, there are uncertainties and unknowns in regards to how the market will look.

Venture capitalists, in the bottom-up entrepreneurial fashion, will go through dozens of trial and error sessions until revenue streams are secured and the business stands on its feet.

Contrast this to start-ups under MMPR. Whereas bottom-up entrepreneurship creates wealth through a free and fair price discovery, top-down entrepreneurship is, essentially, an application for a government central plan regulating private enterprise. Top-down entrepreneurship doesn’t eliminate risk or uncertainty; it just gives the illusion of a stable, industrialized cannabis sector. In the long run, rules and regulation may actually cause more risk and uncertainty since the bureaucracies making the rules aren’t checked by price signals or the risk of bankruptcy. Those two functions are directly tied to consumer valuations. If consumers aren’t running the show by voting with their money, then who exactly is in charge? Will electing an MP every four years really influence the decisions of some federal bureaucracy 3000 km away?

By default, bureaucracies must be ideologically-driven, no matter if it’s a “conservative” or “progressive” variant. In contrast, profits in a free and fair market indicate that consumers like what they do and are willing to pay for it.

A venture capitalist involved with the MMPR doesn’t go searching for growers. At least not right away. For the most part they’re not interested in tapping into the creative geniuses of BC’s farmers and the genetics they’ve been developing over decades. For them, it’s simply about following Health Canada’s rules and regulations. And the MMPR weren’t a result of a process where consumers, farmers and entrepreneurs discovered what worked and what didn’t. It was a top-down central plan created by an ideological Conservative government. Instead of championing the small businesses of British Columbia (and elsewhere), the architects of the MMPR attempted to forcibly put these people out of business, and in their place install large industrial greenhouses that can trade on the stock market.

Now, there’s nothing fundamentally wrong with shareholders and trading on the stock exchange, but are the LP valuations worth the risk? The answer is “No,” because we’re in a bubble economy where wealth is at risk of evaporating when the US Federal Reserve decides to raise interest rates. Additionally, LP greenhouses may not yield the results they expect because cannabis is relatively easy to grow, people like to grow it themselves, and the costs of production may exceed how much the final product sells for. There are a bunch of reasons some LPs may fail in the next stock-market crash, and since so much has been invested into capital that can’t be quickly liquidated, the risk is actually greater than bottom-up entrepreneurial venture capitalism. Whereas the bottom-up entrepreneur may have been investing his money wisely, that is, on a case-by-case basis and for things he personally values as a long-term good investment, the LP venture capitalists are simply just following the rules of the Health Canada bureaucracy in hopes that it all pays off in the end.