The Last Decade of CPG Products

Gotham finished up our first cohort of Black founders, called the Gotham Growth Project, who are building CPG brands in the cannabis space. It was a six-week curriculum with an incredible group of people from multiple industries that came to speak about building a brand, leadership, operations, legal, finance, etc.

At the next The Highrise event on October 22 (info coming soon), each founder will take the stage and talk about their brand. Yes, we are following the models of Techstars and Y Combinator, but in the cannabis industry, there is no money, and we don’t take a stake in their business. We do this to do the right thing, for a community that deserves to shine in this industry. We are sharing our skills and knowledge and educating them through leaders in different industries.

I read this week that Everlane was sold to Shein, another brand that was built over the last two decades. Everlane struggled for 15 years to achieve consistent profitability, whereas Shein, based in China, is very profitable. I think about all the brands built over the past fifteen years, fueled by capital, how much money went into them, and how many tanked after going public or were sold for pennies on the dollar.

Many of the investors in these new millennial brands leaned into growth mode, as if they were tech companies. CPG, wholesale, and retail businesses are very different. I hope there has been a learning curve and that investors come into the new CPG landscape with fresh eyes and expectations.

The cannabis space is wide open to new brands. The difficulty is that each state has its own set of rules, laws, and regulations, which means a founder must find a new farm to work with in each state and a new dispensary (sales) pipeline. It would be easier if a founder could replicate the model in each state, but that would be too easy, and nothing is easy in this industry.

Keep in mind that I am an eternal optimist, but I do believe federal legalization will happen this year, and that will open the door to investment. Very few investors have taken a leap of faith into this industry. Growing a CPG product in this space is not so different from Nike, read Shoe Dog. Phil Knight began by reinvesting profits in the business because he had no investors. But to grow without shipping gaps during periods of high demand, an infusion of capital was needed. During that time, Knight turned to the banks, which were not equipped to handle these amounts of capital; it was the 1970s, after all.

I am no longer investing, but if I were, I would look to the cannabis industry. There are some killer brands, such as Kiva, that deserve proper venture funding, not debt funding but equity funding. Debt is an unhealthy way to build a business, and it is time that these businesses have the proper funding that many of these dead CPG millennial brands received. There are also countless young brands with smart founders who have navigated a tangled web of roadblocks.

In cannabis, I hope a new group of investors comes in at the ground level and does so with realistic valuations. Many founders have a proven product that has bootstrapped in a highly regulated and disconnected industry. Every tech person I know who has dipped their finger into this industry is shocked. Federal legalization should change a lot of the insanity. Fingers crossed.

I hope that the many lessons learned over the past two decades will inform the next wave of CPG investors, who should take a hard look at cannabis. There will be winnings there.