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Jay Currie
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  • Is The Marijuana Industry The Next Dot-Com? 0 comments
    Aug 16, 2014 5:52 PM | about stocks: FVPI

    Vin Maru poses the question "Is the Marijuana industry the next Dot-Com?" over at the Linked-In Invest in Marijuana group. Here's my response.

    This is a bit like the .com world but it differs in some very significant ways.

    1. Regulated - .com was the wild west, pot for investors is all about regulation and the costs it brings.

    2. Normal Business - .com companies had silly valuations based on concepts no more worked out that "Hey, what if we set up a website called cement.com and sold bags of cement really cheap." Pot growers have an actual product with a shelf life and a market at a particular price point.

    3. Burn rate - .coms were all about the burn rate and, when the money was burned that was the end of them. Pot companies can generate revenues within a few months of commencing operations and profits shortly after that.

    4. Competition - the great .com successes - Ebay, PayPal, Google, Amazon - worked really hard to keep their first mover advantage and crush their competition. Pot companies will have competition from day 1. While there will be consolidation in the industry the fact is that the costs of entry are fairly low and the product is (dare I say it) pretty much a commodity.

    5. Cost control - .coms spent a lot of money to no apparent effect. The fact was that they either came up with something awesome or they died. Controlling costs would not produce awesome and could only postpone the moment of death. Pot growing is going to be all about cost control. One side of that will be keeping the inputs cheap but another side is going to be streamlining compliance to keep those costs down.

    6. Marketing - .coms spent a lot on marketing to no particular point because, in many cases, they could not really explain why their website was a necessary part of the internet. Buying Superbowl ads was lovely but sort of beside the point when the concept was not clear. Pot growers are more like toothpaste manufacturers, There is very little to differentiate their products so branding is going to be important. So will segment targeting - medical marijuana users will need to be marketed differently than recreational stoners.

    Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Stocks: FVPI
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