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

SFV OG – Power Dep

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