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The Great Cannabis Crash of 2019

California is famous for its cyclical booms and busts: housing, dotcoms, gold mining. Guess which industry is next.

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Still, though, the problems aren't merely exclusive to government. As happened during the dotcom boom, there has been a mad rush of investors and entrepreneurs into the business, often bringing little to no industry knowledge with them. In too many cases, Hammon said, entrepreneurs don't have "real operational skills." There's obviously lots of money to be made in the California pot market, but recognizing an opportunity is not the same as exploiting it. Running a pot business — and especially a dispensary — is incredibly hard, complicated work, and profit margins are thin even in the best of circumstances. Even savvy, experienced operators have a hard time with the costs and burdens of complying with strict regulations on things like testing and labeling.

Part of the problem is that many cannabis boosters drank their own Kool-Aid. Banking on rosy forecasts often produced by them or their industry friends, they spent profligately, ignored enormous start-up costs, underappreciated the burdens of complying with strict regulations, and, in some cases, issued stock to the public too soon, usually by listing on Canadian stock exchanges. (American exchanges still won't let plant-touching businesses list at home — another outcome of continued federal illegality.) "There was a belief among investors," Hammon said. "If we get the license, the money will flow."

Of course, many dotcommers thought the same thing about domain names in the mid-'90s. It was toward the end of the dotcom boom that such hard-to-watch meltdowns started hitting the news on a regular basis. Every week or two, we read a new tale of some company with an iffy business model falling apart. Then came the stories of coke-addled lunatics partying through their workdays while burning through their capital. There hasn't been a lot of that so far in the cannabis industry. But if it starts happening with any frequency, we'll know that things are about to get worse.

No matter what form it takes, though, bad news is likely to keep coming for the next few months. And it will likely come fast. Hammon, the cannabis consultant, doesn't think the speed at which this bubble has popped is in any way endemic to cannabis. It's not "cannabis time," but, actually, Internet time. Technology has sped everything up: the time it takes to set up businesses, secure financing, acquire companies, hire people, and set up supply chains has been radically compacted. There's no reason it won't fall apart just as fast. "The whole thing has been faster," he observed, "so the bust has been faster too."

One thing never changes, however: hubris. "Everyone thinks they have it all, until reality shows up," said Fontan, a veteran of the cannabis business. "Seen it for decades."

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