The Surprising Similaries Between Luxury Fashion and the Cannabis Business
Giving new meaning to the term 'High Fashion.'
I recently read The House of Gucci: A Sensational Story of Murder, Madness, Glamour, and Greed, the nonfiction book that the 2021 film is based on. While I came for the fashion and high-stakes love affairs, I stayed for the complex business case study that mirrors what I see in long-running cannabis companies. Here are the striking similarities.
The House of Gucci's plot revolves around Maurizio Gucci and his relationship with Patrizia Reggiani. The two meet at a party, and Patrizia is star-struck by Maurizio and his family's legacy. At the time, the company was owned and operated by Maurizio's father and uncles, who inherited the business from their father and later it passed down to their respective heirs. But mixing business and family gets thorny for the Guccis.
Multigenerational dynamics like this often create complicated company relationships for companies. This was the reality for several early-day cannabis businesses started by siblings or close friends when California first legalized medical cannabis. Even ten years ago, these operations were not considered a viable investment - similar to fashion back at the turn of the 20th century when houses started to emerge. Instead, these small businesses were funded and bootstrapped by the founders or friends and family. Relationships and terms were often loosely defined. Hiring decisions were frequently based on who knew who, not who knew what.
As California medical markets evolved into adult-use, increased competition and feuds over which direction a company should take pressured relationships and fractured friendships. Many early companies could have been great if they were not derailed by relationships that couldn't separate family ties from business transactions. One only has to dig in on some of these legacy companies to find mountains of publicly filed lawsuits between founders, some of which include bold and nefarious claims, especially in California.
Cults of personality
Another striking similarity between fashion and cannabis are the characters at the center of the operation. Several famous design houses were founded by iconic and eccentric personalities who become synonymous with their brands. Karl Lagerfeld. Oleg Cassini. Coco Chanel. These artists blended craftsmanship and flair. Similarly, cannabis cultivators have a deep passion for their work. The most talented will breed unique strains and terpene profiles and then labor over the right way to trim and cure their harvests.
Problematically, deep creatives like these often pay little attention to fiduciary detail prior to growth. In addition, they have trouble reconciling how to preserve quality while increasing volume. This becomes an issue when founders are beholden to investors who want to increase revenue and market share.
When Gucci had an issue with their balance sheet, they focused on bolstering their management team. Domenico De Sole brought his business and legal prowess to steer the company from bankruptcy into growth mode. His partnership and belief in the young, but talented Tom Ford injected new life into the old brand, expanded the commercial product line, and attracted millions of new customers. Unfortunately, the cannabis industry is young, and companies have a hard time finding a ringer. Instead, founders are often pushed out, and talent is brought in from other industries.
In my business, we have seen management teams and directors who have come into these companies from traditional firms such as Ford, PepsiCo, Constellation, etc. We love seeing teams with that combination of traditional and analog business experience paired with talent and vision.
Pressure to IPO
In the 1990s, fashion houses started to eye China and other Asian countries as viable markets and began diversifying their original lines to appeal to younger customers. To finance those expansion opportunities, several designer brands went public. While some thrived, other fashion companies failed to deliver on their promises.
Donna Karan, the designer known for female fashion minimalism, had a highly anticipated IPO and shares shot up from an initial price of $4 to $24 on the first day of trading. However, expansion plans stalled, and stock prices plummeted. This trend would be repeated with other companies.
Over the past couple of years, cannabis companies have also had to deal with the aftermath of overhyped IPOs (or, more frequently, Reverse Takeovers RTOs) that just couldn't deliver results in emerging markets. Some of these companies have had to divest assets, some are tied up in ongoing litigation, and others have been consolidated into even larger companies. More likely, the company's valuation is only a fraction of what it was at its initial public offering.
Just as in fashion, consolidations will continue to occur as new markets open, and winners and losers ultimately emerge. Today, we have mega-fashion houses like LVMH, which picked up Donna Karan and owns other well-known fashion brands such as Christian Dior, Berluti, and Tiffany's. Today Gucci is owned by French luxury group Kerig, which has a stable of other powerhouse brands such as Balenciaga, Yves Saint Laurent and Bottega Veneta.
Cannabis companies are also starting to build deeper benches and better market share through M&A activity. Recently, Cresco Labs announced that it would acquire Columbia Care for $2 billion. When the deal is finalized, it will create one of the largest operations in the U.S. cannabis industry. In October, Trulieve closed a deal with Harvest Health and Recreation that gave the company over 149 retail outlets in over 11 states.
While consolidation is often painful for businesses, it is good for industries. They help to establish economies of scale that drive down the cost of goods and services and make the marketplace more competitive – and therefore affordable – for consumers.
The fact that cannabis and fashion brands have several overlapping challenges and opportunities should come as no surprise to people. Both are cultural juggernauts and have had far-reaching influence over consumers. Both are connected to how people view themselves and their lifestyles. Cannabis brands are also often compared to fashion brands.
In 2017, a New York Times article called Beboe the "Hermes of Cannabis." Interestingly Beboe's co-founders are both seeped in the world of fashion. Clement Kwan worked for Theory and Dolce & Gabanna. Scott Campbell was and still is a tattoo artist who has collaborated with designers like Marc Jacobs.
Brett Heyman brought her keen eye for unique and notable accessories from her brand Edie Parker into the cannabis accessories space with the launch of Flower by Edie Parker. Heyman, who spent two decades in the luxury fashion world, says it's natural that cannabis and fashion would have similarities.
Heyman believes there is the possibility of luxury cannabis accessories, just like there is for high-end barware, that shows off individual tastes and personalities. She also believes that as brands mature, they will start to move towards creating more holistic and thoughtful product lines that work together, much like fashion collections.
Indeed, fashion has many lessons to learn on how to position products and build brands that resonate with consumers. As Coco Chanel once said, "In order to be irreplaceable, one must always be different."