Close Menu

Whose responsibility is it? #25 - Understanding the growth and scope of an industry

On August 30, 2017 The Mona School of Business and Management hosted a very successful Public Forum entitled “The Business of Medical Marijuana: profit or loss?” The speakers at the Forum highlighted and discussed several critical and relevant issues that went far beyond the usual “smoking issues”. The Forum can be viewed on the YouTube site of MSBM.

The most important theme for businesses that came out clearly is that this is an industry in rapid development, and also it is part of a global development that we ignore at our peril. The Forum also clearly defined the emerging structures within the cannabis industry, and the competition in each stage of the development of the supply chain. It is important to note that the billions of revenue dollars bandied about in uninformed discussions also requires billions of investment dollars in order to enter the industry.

There are several challenges that confront the industry that are not dissimilar to other industries that we have witnessed and are familiar with their development. I will mention a few of these.

Coal as a source of heat energy has gone from above-ground( or open pit) mining, to simple underground often portrayed in old movies, to sophisticated deep vein mining supported by heavy engineering and machinery. Similarly, the uses of the coal has developed with technology application from cooking, to steam engines for trains and boats, to electricity generation, and the industry may be nearing the end of its life cycle even if POTUS promises differently.

Oil also started as a source of heat energy but quickly developed other uses as gasoline fuel and lubricants for the technology of the motor vehicle industry, and as a more easily supplied fuel for electricity generation. The offshoot of natural gas as an alternative to heavy oil, diesel, kerosene, and gasoline, is also a fossil fuel but is seen as a cheaper and cost-efficient option for electricity and heating. Therefore this also requires further examination of its life-cycle positioning.

Bauxite as the basis for an aluminum industry is well known to us in Jamaica. We have seen the massive investment in mining and processing, and know of the vast demand for aluminum for motor vehicles, housing, and the aircraft industry. The end-user technologies that had been using the bulk of the products have changed and are now challenged by plastics and other stronger and lighter materials.

I have highlighted these few industries to simply illustrate how the lifecycle is heavily impacted by the advances in science and technology and how vulnerable each is to the rapid redundancy of their capital investment. In fact, it may be a better financial decision to simply abandon the infrastructure than to put more investment in a declining industry.

A second feature of industries is the supply chain and the opportunities for earning at stages by different groups. For example consider Trinidad and Tobago and the oil and gas industry. The deposits are owned by the country, but the technology is the intellectual property of the mining companies and this requires agreements and some compromise. The oil rigs are owned and operated by the mining companies (like BP and Exxon) and T&T is paid a royalty for extraction.

So where do the citizens benefit? The answer is in the supply of some labour, goods, and services. So good diesel mechanics, welders (above and below sea), chefs, other maintenance workers (plumbers, electricians, etc.), are a part of the labour supply chain. For goods there are opportunities for specialized oilfield hardware supplies and installation that offer good potential. For services, the boats and helicopters to transport workers to and from offshore rigs, vessels to deliver supplies of hardware, food supplies, and entertainment services are part of the supply chain open to local companies and individuals.

T&T are not a part of the global operations of retail petroleum, nor are they a player in the global decision-making environment. They are a small player in a global industry in which they only have the raw material and little control if any, of pricing, delivery, and the exercise of monopoly or oligopoly. In these examples the big oil companies have been rumored to buyout and bury new discoveries that could replace oil as the global energy source.

The rumours of unfriendly, unethical, and sometimes ruthless behaviors are not limited to oil, and also have extended to the Pharmaceutical Industry worldwide. This has been less obvious than the oil industry as the pace of new inventions and rapid technological advances has masked some of the oligopolistic tendencies, and there are three main reasons, but I caution that they are not collectively exhaustive.

Firstly, the ability to accurately diagnose previously unknown/untreatable illnesses has prompted revolutionary research albeit at very high costs. These improvements have affected the old recurring high volume diseases like smallpox, diphtheria, poliomyelitis, cholera, and MMR. Therefore times taken to complete and bring new high volume products to market are very competitive factors.

Secondly, the regulatory factors are extremely long and costly and prohibit many potentially good products from making it to the market as they may treat lesser encountered or low occurring diseases that may not be profitable.

Thirdly, the worldwide humanitarian lobby has reduced the time allocated to patents in support of cheaper generic medications that reduce patient costs but allow less time for the return on investment. This has had two deleterious effects: in reducing research; and very high prescription prices while patents are still valid.

This is the marketplace that medicinal cannabis faces and the scientific and financial competence requirements must not be overlooked. Additionally the regulatory environment must be transparent, decisive, and quickly applied, without bias or incompetent/unnecessary bureaucracy.

If we accept that the rumours that attribute focus on ongoing treatments as opposed to cures are even remotely correct, then the strategic course for medicinal cannabis must be re-examined. The palliative recurrent uses can, and will be easily prevented from entering large markets through the non-tariff barriers or biased regulatory mechanisms. For example Cannabis as a drug for effectively treating glaucoma is not allowed for sale in the USA after more than 30 years.

The other strategic route suggests that we must find cures for the many ailments that cannabis may be able to totally alleviate. However this is a more costly route and we need to be aware of the larger scale of research, capital investment, and time to markets. Other than this we are simply stuck on the non-medicinal road of recreational usage of what will soon become a low value enterprise.

The latter “irie man” recreational route has certain hazards for other industries, for as long as the US Federal Law remains then the correspondent banking relationships, and shipping and airline services will remain at risk. This may even be a strategy of the USA that will allow States to do their own thing in the face of pretended Federal opposition. This has happened in more than one industry or product group (including hot pepper sauce in Louisiana).

It is decision time if progress is to be made before the window closes.

Whose responsibility is it to make those decisions I wonder?(Please note that Wonder used to be only a word for margarine).


James Moss- Solomon
Executive in Residence
Mona School of Business and Management

September 4, 2017

Top of Page