The Brutality of Obsolescence
Becoming
obsolete is no fun…in fact it sucks. It tends to make you grumpy, and fearful,
and less fun to be around.
In
capitalistic America though, economic obsolescence is constant. As technology, demographics, consumer preference,
political leanings, regulations, and innovation continually alter the
competitive landscape, some within the economy win while others lose. In advanced economies like ours, it seems
that some win big, while most don’t.
As is often
the case nowadays, it is often the smaller, poorer, and less well run
operations that go away. Industry’s
emerge, grow and consolidate, often with tremendous rapidity in an
interconnected, technological, and highly capitalized world. While enormous wealth can be made thru the
process, it tends to be that wealth ultimately concentrates in the hands of a
few. As a fishing and pot smoking buddy
of mine oft notes “if you gave everyone in the world a million bucks, most
would be broke in time.”
Such is the
case with cannabis.
Mason jar
millionaires, of which our and neighboring counties in the triangle rely
heavily upon, are getting squeezed – quick.
The smartest among them have seeded multiple enterprises to diversify
cash flow, and many have been raising liquidity rather than spending it. They have become quieter, more resourceful
and more margin focused, yet many are still nervous despite high levels of
continued economic and business success.
Others are aggressively pursuing white market cannabis activity where
there continues to be pockets of pricing strength for the highly adept and
highly skilled.
The problem
is that not enough of us are making the cut.
Shit weed, the type mostly produced in Humboldt nowadays, is no longer
desirable. Many who thought they knew
how to grow are only decent at best.
What many consider to be big, oily, chunky and stoney flowers are
actually larfy, leafy, twiggy and sterile in relation to high grade greenhouse
or indoor flower. As someone who has
farmed using all three methods, I’ll say it’s tremendously rare to see outdoor
or light dep flower that satisfies changing consumer demands. Flower size and structure, terpene content,
outer trichome production and preservation, consistency, visual appeal,
potency, color, and flavor are all attributes valued by more discerning users
and commercial buyers. Most stuff around
falls far short in several or all of these areas. The newest trend, putting decent weed in a
pretty package and telling people how special it is won’t work either, at least
not for long.
We can’t kid
ourselves any longer. Most growers,
including the majority of those now holding temporary cultivation permits, were
successful, not because of their skill, but because they were operating in a
bull market. Until very recently brown,
crappy mountain weed and tiny, mildew infested indoor was selling for thousands
a unit…didn’t have to be a real rocket scientist to get a roll going.
Low skilled
farmers are now fading fast. Many are
going broke, selling assets or closing shop and selling farms to outsiders with
more prowess, deeper pockets and firmer distribution. High flyers just two years ago, folks
dropping 10g’s at the casino in a night are now driving around with smug looks
on their faces. Not so many wide eyed
grins or as much bravado as before.
Crazy thing is none (or few) of them saw this coming. Overconfidence and high levels of cash flow
can blind, as many are now learning.
The number
of people earning great wages doing scissor work, moving boxes on the side, or
picking up labor days at $250 a shot contributed untold millions to the local
economy. What economics shows is that
when regular folks like you and I get a little extra dough, we tend to spend it
– there’s a consumption effect and a real boost to economic activity. This is what’s really decimating the broader
Humboldt economy. Less construction,
less durable goods orders, less of a lot of stuff. Even liquor stores are complaining about lost
revenue for goodness sake.
As a private
financial consultant and a grower myself, all this pains me at some level. While the arrogance, pollution and violence associated
with cannabis production and sales were always repulsive, the huge influx of
capital attributed to growers and the teams of people they supported can’t be
understated and will be sorely missed.
While we all
know people who are still socking it away, most no longer are. As the local economy is halved over the
coming years, life as we have come to know it will change. Our homes and land will lose significant
value, most non-essential businesses will shut down, and many individuals will
up and leave the county altogether. I
expect crime and violence to increase further amid mounting desperation, and
this time, I’m hard pressed to see the local economy returning to its former glory.
Humboldt, as
crazy as this will sound to those who lost everything, had it relatively easy
during the 2007-2009 financial collapse.
Times were tough locally, but we got out of the recession very
quickly. Let us not forget CNBC, Pot
Town USA, the Green Rush, and billions of dollars that flooded our economy over
the ensuing years. People, not just
growers, made huge money and the county was spared of true economic collapse
once again.
Not likely
to happen this time around. Flower is
now selling near or below production costs for many and prices are likely to
continue their downward trajectory until a national marketplace comes to
fruition. Margins for oil, extracts and
derived products, and for processing and distribution will come in dizzyingly
fast amid competition and diminishing economic rents. What’s left…not a lot. A few astute business folks will remain,
corporate producers will spend less locally after the initial infrastructure
build outs currently underway, and the county will continue to hope that the
hospitals, universities, bike trails and the arts can support us all.
One problem
with humans is that we tend to believe that current economic conditions
(whatever they may be) will persist, so the economy grows or shrinks
frantically as realities on the ground shift.
We’ve never been a real middle of the road economic engine…boom and bust
is more the capitalistic paradigm. And sadly with economic busts, things usually
overshoot to the downside, that is, they get even worse than real conditions on
the ground warrant. As emotional,
reactionary beings, we largely expand or retract too far, and often at the
wrong time. Investment and risk taking
are crimped when the music stops and things come to a grinding halt until
confidence is restored. I’m fearful that
confidence will not make its way back to the curtain after the coming
implosion.
This time
it’s bust for Humboldt and I, like others who work in the financial industry,
am deeply concerned for my lifelong home.
A sleepy little ghost town sounds quaint to some, but getting there from
here, the “readjustment” or “realignment” now being discussed, will be no fun.
I’ve labeled
our current predicament as “Humboldt’s last ride,” our final hoorah if you
will. While lots of folks just got paid
as warehouse rents and prime ag land prices skyrocketed, those benefits were
largely enjoyed by those with deep pockets already. Favorable weather and bountiful harvests the
last two years helped many more, while corporate investment is padding the
pockets of others as we speak. That
said, Humboldt is in the very last innings of expansion and ominous times loom
large.
Merchants
are down, way down and we are still in the very early innings of what promises
to come. Even really exciting things such as the proposed fish farm on the bay
will only bring an estimated 80 jobs.
Near half a billion to be invested by a foreign entity, but profits will
head overseas. When considering only a
half mil upfront and annual chump change for the harbor district after spending
a bunch more cleaning up the proposed site, this will not be the panacea some
are speaking of.
If you have
money, protect it. In a few years
enourmous value will emerge for those looking to purchase land, homes and
existing cannabusinesses. Doing so now
will likely lead to very large near term losses as our friends to the north can
attest. I suspect Warren Buffet came to
the county partly in a bid to capitalize on the recent real estate spike, but
as a contrarian by nature, I expect his real motive was to be on the ground
preparing for the collapse, so that he may pick up the very best scraps that
remain.
All the best.
Jesse Duncan
Becoming obsolete is no fun…in fact it sucks. It tends to make you grumpy, and fearful, and less fun to be around. In capitalistic America though, economic obsolescence is constant. As technology, demographics, consumer preference, political leanings, regulations, and innovation continually alter the competitive landscape, some within the economy win while others lose. In advanced … Continue reading The Brutality of Obsolescence →Read More
