This newsletter appreciates a financial metaphor

A financial framework for cannabis, coke (both kinds)

A financial framework for cannabis

Programming note: Money Puff will be off next week, back the next. Before Spring Break, I thought I’d lay out a couple core theses of Money Puff that we’ll be exploring in the future.

Part of the thesis of Money Puff is that cannabis and finance a lot alike. Only certain businesses can trade the highly regulated products banks and dispensaries provide: capital and cannabis, respectively. Regulatory regimes are established to ‘protect’ the consumer from getting too much, and dealers are supposed to ensure they are only selling to folks who can handle it.

Getting a loan from a bank is a lot like purchasing cannabis from licensed dispensaries.

This framework is particularly helpful for analyzing cannabis. While modern financial markets and regulation have evolved over at least a century in the United States, cannabis is still in its infancy. Lessons are being learned in real-time, but they are not without historical precedent if you know where to look.

Take, for instance, the opaque, Byzantine process of getting licensed. It’s much easier to expand through partnerships in both banking and cannabis.

Now imagine a financial system where licensed dealers only hawk low-quality, high-cost products like payday loans.¹ That’s essentially the cannabis market as it stands now, dominated by MSOs. If you want to get ‘legal’ cannabis, you have to go through them. You usually wouldn’t go to the folks down the street for credit because your community bank should be able to provide the most and best (best being cheapest when talking about capital). But the folks down the street probably have a lot better weed than the only dispensary within 25 miles.²

There are other helpful industry similarities to explore; KYC in the legacy cannabis market, public distrust — and systemic importance — of the biggest industry names, misleading marketing of product attributes related to percentages, firms’ profits concentrated in a few big ‘whales’ who are heavy users. We’ll spend time with each in turn.

I know a lot of my readers also appreciate a good financial metaphor. Let me know if you have any thoughts by dropping a comment, tweeting @moneypuffnews, or emailing liam@moneypuff.co.

Coke (both kinds)

Another part of the thesis of Money Puff is that folks today prefer cannabis to a lot of other drugs. I spent a few years on Wall Street, where cocaine has traditionally been the drug of choice.³ I’d like to explore that in the future, as my suspicion is a good swath of finance pros are stoned at work a lot more often than you’d think.⁴ Not that there’s anything wrong with that.⁵

Photo by krakenimages on Unsplash

To illustrate how impactful changing perceptions of a drug can be, consider the fact that Coca-Cola used to contain literal cocaine. Here’s Eater on the infamous origins of the world’s favorite sugary drink:

Coca leaf has been used in its native South America in medicinal, spiritual, and recreational contexts for centuries. When chewed or brewed into tea, the leaf has a mild stimulating effect, and has been used traditionally to treat stomach issues, suppress appetite, and relieve the physical effects of high altitudes. But, in the 1800s, cocaine — a powerful stimulant isolated and extracted from the coca leaf by the power of chemistry — became Europeans’ drug du jour. It found its way into medicine as well as the enthusiastic embrace of Sigmund Freud, it was written into the plot of Sherlock Holmes, and it was also added to an array of popular foods and drinks.

One of those drinks included Vin Mariani, a patent medicine made with red wine and cocaine that was a favorite of both Pope Leo XIII and President Ulysses S. Grant. It was this beverage that the Coca-Cola’s founder — a morphine-addicted, down-on-his-luck Civil War veteran named John Pemberton — decided to copy, creating Pemberton’s French Wine Coca. His only alteration to the recipe was the addition of kola nut, creating a trifecta of wine, cocaine, and caffeine that was even more potent than the original. No wonder the advertisements claimed there was “health and joy in every bottle.”

When public perceptions around the drug changed — including racist fears predictive of cannabis’ future weaponization — Coke’s devout Souther Christian president took the opportunity to jump on the bandwagon and re-formulate. Cocaine was nixed, but coca leaves were apparently a crucial part of the flavor; Coke lobbied heavily for a special exemption of “de-cocainized coca leaves.”

There is now a factory in quiet Maywood, New Jersey that, as Eater put it, ‘might arguably be called the cocaine capital of the United States.’ They process the coca for decidedly non-cocainized Coca-Cola, and sell the byproduct off to dentists. My previous point that a good exit for an MSO ‘would be an acquisition by Coke rather than Walmart’ may hold more weight than I thought.

Public perceptions around cannabis are now certainly changing, and Wall Street is no exception. Where there’s money to be made — or a mental edge to be gained — you can bet that financial professionals are all over it. Be sure to puff, puff, pass this newsletter to any stoned financial professionals in your network — I have a feeling they’ll get a kick out of it.

1. Or BNPL, pay advances, etc.

2. Cheaper, too, but that may be because the folks down the street aren’t paying taxes. Not that the MSOs are, either.

3. ‘Traditionally’ meaning ‘since the 80s.’

4. Drugs are an integral part of the functioning of our modern financial system, like it or not.

5. Outdated Seinfeld joke.