University at Buffalo School of Management

Autumn 2021 Buffalo Business 13 "But these high returns come with high risk," Fotak emphasizes. "As with any nascent industry, it will consoli- date—the winners will profit enormously, but many busi- nesses will die along the way." Perhaps the best investment, Fotak suggests, is not in the plant-touching operations, but in suppliers and other services instead—the old cliché of selling shovels in a gold rush. Aer all, as Humiston points out: A cannabis business needs the same things every other business does, represent- ing opportunities for firms in quality control, recruiting, packaging, tech and other sectors willing to jump in. "It's like there's this moat around the cannabis indus- try," he says. "Because it's still federally illegal, these ancillary services aren't competing against the big guys. That's where most of the money is right now." The question now is what happens when that moat fills in, especially if the federal government reschedules or decriminalizes it altogether. History is rife with examples of mom-and-pop shops being overtaken by corporations as industries matured—is that the future of cannabis? At least in New York, Hughes says the Marijuana Regulation and Taxation Act has provisions reserving micro- business licenses and giving priority to certain demograph- ics to promote social equity and economic opportunity. "The legislation has a huge social equity component that's intended to open up the industry to a broader extent than other jurisdictions have," Hughes says. "But there will also be issues for smaller businesses in creating economies of scale or tracking the product—your supply chain has to be flawless. It's a unique experiment that could fall flat or succeed in reducing barriers for a much larger demographic to participate in the cannabis industry." A 'GROWTH' MARKET For further evidence of movement in the marijuana space, look no further than Canopy Growth, a cannabis consumer product company that counts Martha Stewart among its strategic advisors. "The cannabis industry has changed dramatically over the past three years, largely driven by the opening of Canada's recreational market and momentum at the state and federal levels in the U.S.," says David Klein, MBA '89, CEO of Canopy Growth. Klein previously served as CFO of Constellation Brands—a Fortune 500 producer of beer, wine and spirits—and was instrumental in the corporation acquiring a stake in Canopy. Under Klein's leadership, Canopy is capitalizing on Constellation's insights and distribution power to take advantage of gaps in the market. The Ontario-based company is traded on the Nasdaq and Toronto Stock Exchange, and has 70 retail locations across Canada under its Tweed and Tokyo Smoke banners, which allow the company to test innovations before bringing them stateside. "We have an incredible opportunity to transform the way people see cannabis," he says. "A great example is our beverage strategy, where consumers are looking for ways to experience cannabis that are familiar and convenient. Whether that's replacing an evening glass of wine with a cannabis beverage, or having a CBD beverage instead of an afternoon coffee, we offer products perfectly suited to introduce consumers to the category." Despite its growth, Klein says the industry is still in its infancy—and Canopy will keep pushing upward. "We're early in the evolution of the cannabis and CBD markets," he says. "If we're trying to climb to the top of Everest, we've arrived at base camp. But through our commitment to innovation and positioning for the opening of the U.S. market, we're advancing towards the summit." Klein

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