There’s a quote that floats around from time to time: “You are the average of your peers.” If you surround yourself with ambitious, smart, accomplished people, you automatically will strive to be more of those things. Alternatively, if you surround yourself with disreputable people, that will also rub off on you. This is particularly salient in the cannabis industry.
Every industry is dependent on partners, but cannabis partnerships are particularly crucial and complicated. As your business grows, you may need different vendor relationships from state to state as products may not be allowed to move across regional lines. You may need to forge unique relationships with the local community, activists, and even competitors.
For example, let’s say a multistate operator (MSO) based in California’s recreational market offers on-site retail and delivery of specific strains and experiences. When expanding to the Illinois recreational market, that same MSO would need completely different partnerships for product, let alone knowledge of the rules governing pickup and delivery.
Because of these nuances and inability to generalize nationwide, cannabis businesses face a complex task when deciding with whom to work. Depending on your product partnerships, payment providers, and other relationships within the cannabis community, your company could thrive or fail. You’ll need to do your due diligence, truly understanding the nature and character of potential partners before aligning yourself with them. The wrong relationship can lead to unintended consequences.
In a recent indictment, the Department of Justice went after a payment processor fraudulently providing credit card processing to the cannabis industry. Among the company’s relationships was one with Eaze. Reports indicate Eaze cooperated with the authorities as they investigated, but because “Eaze” headlined many news outlets’ coverage of the indictment, the company took a reputational hit by association.
Eaze has gone from being the “Uber of cannabis” to attempting a shift into vertical integration and branded merchandise. The company secured a new round of funding to underlie the new business model, but now Eaze faces a delivery market that is more saturated with competitors like their former partner, Caliva, as well as a range of other operators in local and regional markets.
Other companies are closely watching the move. With business leaders being inherently risk-averse, the fallout from detrimental partnerships is something everyone wants to avoid. While Eaze may recover from its connection to the payment processor, I’m confident the company wishes it hadn’t worked with that partner in the first place. By simply working with a reliable, compliant payment processor, they could have avoided the lawsuits, bad press, and other potential consequences.
Considering how complicated and consequential partnerships can be in the cannabis space, it’s vital to lean on people who know the players involved and can offer valuable insight and guidance. This is where cannabis associations show their value.
Through my connections with the National Cannabis Industry Association (NCIA) and the Marijuana Industry Trade Association (MITA), I’ve been able to gain a deeper understanding of the companies working in the space, as well as the community of consumers and activists in each region or state. These organizations can be particularly vital for finding experts in different areas of the industry. Whether you need to talk to someone who knows growing, labeling, or banking, the experts are part of these associations.
Professional organizations work hard to educate companies, highlighting key points that may not be apparent to growers, dispensaries, or distributors in different parts of the country. While a group like NCIA may work with activists campaigning for legislative change, it also is aware of the realities of proposed legislation and potential limitations.
For example, some cannabis companies believe the Secure and Fair Enforcement (SAFE) Banking Act will bring the branded card networks into the industry. Unfortunately, even if the act passes (which is unlikely with the current Congress), it will not make cannabis federally legal and credit card processing will not become permissible or available. The SAFE Act aspires to improve the lending environment for cannabis businesses and enhance the guidance given to financial institutions currently banking the industry, but it will not revolutionize the way cannabis banking is done or make big-name banks suddenly comfortable with the industry.
How to choose the right partner
In the same way people expect to go on a series of dates before choosing a life partner, it’s a good idea to take your time getting to know potential business partners. Find out who else they’ve worked with. Ask questions about compliance and sustainability. Since any act of poor judgment on their part could end up reflecting badly on you, you need to know just how trustworthy a potential partner is.
Instead of jumping on board with a payment provider because they can offer cheap rates or a payment method you think your consumers want, for example, dig a little deeper. Eaze would have benefited from asking if the banks with which its processing partner worked were aware the provider was processing cannabis payments. Eaze might have sought more information about where the funds were transferred, and whether offshore processors or accounts were involved.
If in doubt about any potential partnership, reach out to your local, regional, or national professional association of choice. With so many cannabis companies led by personalities who have been active in the cannabis community for years, if not decades, close-knit associations can provide significant insight into the companies and products that are trustworthy.
Robert O’Shaughnessy is co-founder and partner at Higher Ground Agency, a public relations and marketing firm supporting the cannabis industry, where he manages the marketing and digital side of things. A graduate of Boston University, he is a frequent speaker and published author, and would probably really enjoy having a beer with you.