Author Topic: Would You Invest in This Business?  (Read 11966 times)

joer1212

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Re: Would You Invest in This Business?
« Reply #100 on: June 03, 2018, 01:44:15 PM »
The original post had you and your parents combined putting up $700k, but this "business plan" has you putting "down" $250k to borrow $750k. So which is it?

The original post had my parents and I each contributing 175k (350k total). The manager's proposal was an earlier plan to purchase a shopping center for 520k, and borrow up to 1 million to fund the business. Alas, that plan fell through. Way too expensive.

You're right, my bad.

I'm still not clear on are the precise definitions for things like "interest," "owner," and "partner." It sounds like he's describing multiple classes of equity for a multimember LLC, but not clear who gets what (e.g. in the case of liquidation, profits) and who is passive vs. active in running the LLC. IMO you need an attorney to draft an operating agreement that spells these things out in fine detail.

I agree, but that's assuming that the whole premise of this business is even sound, which I don't think it is from the feedback I've gotten on this forum. So, I don't feel inclined to pursue it any further, unless I can purchase the property and start some kind of ancillary pot business.

maizeman

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Re: Would You Invest in This Business?
« Reply #101 on: June 03, 2018, 02:04:43 PM »
It's still generally good advice when it comes to starting businesses, particularly with multiple investors and owners. If you are unhappy with your present position, it seems quite possible you'll eventually go through that process, regardless of what kind of business  you ultimately find yourself in.

Linea_Norway

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Re: Would You Invest in This Business?
« Reply #102 on: June 04, 2018, 03:08:55 AM »
If you ever want to start a business, I think it is smarter to invest into a business that doesn't require many investments, like selling your own knowledge. Big investments put a large pressure on a business to make profits soon.

Spiffsome

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Re: Would You Invest in This Business?
« Reply #103 on: June 04, 2018, 03:40:54 AM »
Pardon me if I'm reading this wrong, but your brother's business plan calls for you to sell $2.4 million in weed in its first year of operation? That's a fucking shit ton of weed for an established operation, but you're expecting to grow and move that much in your business's first year, with no name brand recognition, no industry contacts apart from a Brooklyn dealer and your brother, and no experience in large-scale manufacture or logistics.  Just the mechanics of labelling and packaging that much green is a nightmare.

You have said that you would not be involved in this if your brother wasn't in on it. That means that you already recognise that the business is a bad idea financially, but the emotional ties with your brother have got you dragging your feet. If you're worried about your relationship now, imagine how bad that relationship's going to be after he's lost six figures of your and your parents money?
« Last Edit: June 04, 2018, 03:42:36 AM by Spiffsome »

FINate

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Re: Would You Invest in This Business?
« Reply #104 on: June 04, 2018, 10:29:59 AM »
Pardon me if I'm reading this wrong, but your brother's business plan calls for you to sell $2.4 million in weed in its first year of operation? That's a fucking shit ton of weed for an established operation, but you're expecting to grow and move that much in your business's first year, with no name brand recognition, no industry contacts apart from a Brooklyn dealer and your brother, and no experience in large-scale manufacture or logistics.  Just the mechanics of labelling and packaging that much green is a nightmare.

You have said that you would not be involved in this if your brother wasn't in on it. That means that you already recognise that the business is a bad idea financially, but the emotional ties with your brother have got you dragging your feet. If you're worried about your relationship now, imagine how bad that relationship's going to be after he's lost six figures of your and your parents money?

I think the plan was to focus on wholesale. But yeah, even very basic back-of-the-envelope estimates are missing. I know next to nothing about the pot business but was able to find useful numbers for estimates in just a few minutes.

Yield per harvest per sqft: About 40g (0.0881849 lbs) seems like a reasonable estimate.
Harvests per year: 4
Wholesale price per pound (2017): $1500 (Mean)

This is the type of thing best done in a spreadsheet (see attached).

So on the surface the revenue estimates are roughly in the ballpark. But the value of drilling down into the numbers like this is that it immediately becomes clear that a lot hinges on the local wholesale price. The 2017 prices alone have a stddev of 258, and if you look at the bottom of that link you can see the confidence intervals based on the sample of whole prices in 2017. So 95% confidence that prices will be 1246.9650880478 - 1753.0349119522 and 99% 1167.4398300057 - 1832.5601699943 based on last year's prices in different states. That's a pretty large range that puts them between undershooting and overshooting their goals.

This also assumes the operation hits the ground running and actually has 4 harvests the first year and every year after. Which seems... optimistic. Getting permits, build-out, and working out the bugs always takes longer than expected. And once things are up and running, no idea how often a crop fails. This should all be factored into the estimates.

And no idea how accurate my sources are, do your own homework :) But if I were investing in a business this is one of many types of due diligence I would do before pulling the trigger. 

joer1212

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Re: Would You Invest in This Business?
« Reply #105 on: June 04, 2018, 11:10:39 AM »
You have said that you would not be involved in this if your brother wasn't in on it. That means that you already recognise that the business is a bad idea financially, but the emotional ties with your brother have got you dragging your feet. If you're worried about your relationship now, imagine how bad that relationship's going to be after he's lost six figures of your and your parents money?

I actually thought that this was a good business idea that could not only help my brother, but also myself. The reason I stated I wouldn't get involved if it wasn't for my brother is not because I thought it's a bad business idea, but because I don't know anything about the business.

joer1212

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Re: Would You Invest in This Business?
« Reply #106 on: June 06, 2018, 08:07:56 PM »
I'm planning to email Jeff (the manager) the following. What do you think?

Hi, Jeff,

I've been mulling over your cannabis business proposal over the past few weeks. As you know, I've been very serious and passionate about it. But, while the prospect of becoming successful in this business excites me, I can't shake the nagging feeling that I may be overlooking some potential pitfalls.
So, I posted on a couple of online forums recently to get the opinions and insights of other people. Some of these forum members are already in the legal cannabis industry, while others have a background in business, so I value their input.
I was shocked when they almost unanimously advised me to stay away from this business. I was expecting them to encourage me and offer advice on how I can become successful at it. Here are the links:

XXXXXXXXXXXXXXXXXXXXX

XXXXXXXXXXXXXXXXXXXXX

After reading all the negative feedback I received on these forums, I came up with a list of questions and concerns that I need answers to in order to proceed with this business. There are serious financial and legal consequences for me if I make a wrong move, so it's critical that I know what I'm getting into.
I had this discussion with my brother, and he is very upset, because he was counting on me to dive into this venture headfirst. He is so upset that we haven't spoken for a week. But, I will be the one taking 100% of the financial and legal risks in this business, not him. It's very easy for him to be gung ho when he has nothing to lose. In fact, I am the only member of our team who has skin in the game, and that's very troubling to me.

Anyway, here are some of the questions and concerns I have:

(1) I am probably prohibited from participating in a cannabis business by my NY state civil service job. But, I can't confirm this with my employer because this will cause him to keep an eye on me. Is there any way around this? What are the chances that my employer will find out that I'm involved in a federally-illegal business in another state?

(2) How are we going to avoid the damage that the 280E tax law will inflict on our profits? How do you know that a CPA can mitigate the damage? Has he done this before? Shouldn't we consult with a CPA before I invest capital into this venture?

(3) How do you know that the DEA won't start enforcing federal law? My assets can get seized and I can go to prison. I don't want to play Russian Roulette with my life.

(4) My 401(k) investment company can drop me because I'm violating federal law.

(5) Jeff, I know that you run a real estate business, but have you ever been in the cannabis business? What qualifies him to run one?

(6) If you and Jay each own 10% of the company, then you will also be owning 10% of the real estate (because when we form a corporation, it owns the property, and you're part of the corporation). This wouldn't be fair, since neither of you have contributed capital for the purchase of the real estate. We need to address this issue.

(7) Will the IRS be auditing me (business and personal) every year because of my involvement in this business? What's are the consequences of this?

(8) Can the feds retroactively seize my assets, even years later, because I was involved with cannabis? When am I out of the woods? Do all my assets become tainted after my involvement with cannabis?

(9) How can my parents contribute money to this business without being legally involved and without tax consequences?

(10) How on earth will I pay Jay and my brother (who have felonies)? In cash? Is this even legal?

(11) What are the financial institutions that will take our money? Also, if these institutions are not federally insured, who insures them?

(12) What happens if and when you and Jay decide to leave the company? I know nothing about running a pot business.

(13) What if cannabis suddenly becomes legal at the federal level, and now our window of opportunity is much narrower?

(14) The compensation structure of our business is very bad. If business is doing poorly, what's to stop you and Jay from jumping ship to a competitor, who will pay you more? You have no incentive to stay during bad times.

(15) What if we lose a crop? We don't have the money to ride the storm out. It seems that we are greatly underestimating the cash reserves we will need to stay afloat in this business.

(16) How low can the price of cannabis conceivably go within a 3-5 year time frame? Can we still prosper with very low prices?

(17) Where is our detailed start-up budget and cost-of-sales projection? We seem to be guesstimating and pulling numbers from our asses. NOT a good way to start a business. We need to be more accurate.

(18) What is our specific strategy for achieving efficient regulatory compliance?

(19) Who will be our customers, and why will they buy from us instead of from other growers? How do we achieve reliable markets and distribution channels?

(20) Assuming we find these reliable markets and distribution channels, how will our clients pay us? In cash?

(21) If you and/or Jay underperform, for whatever reason, I have no ability to change your compensation or terminate our business relationship, if necessary, since you will be part owners of the business.

(22) If our business is in the red, can it make additional capital calls on the owners (with the option of revoking their shares if they don't contribute), or just to those who have contributed capital (my parents and I)?

(23) Where are we going to get insurance for fire, theft, injury/death on property, or if someone that we sold pot to kills someone in a DWI?

(24) Is it true that I will not only be liable for federal taxes (with limited deductions), but also for Massachusetts AND NY state taxes as well (because I'm a resident)?

(25) What if you or Jay, God forbid, get injured or even kidnapped on the property? How liable am I?


Jeff, I understand that we are in a time-sensitive business, but I can't afford to rush into something without knowing what I'm getting into. Therefore, when you have time, could you, please, address the above questions and concerns by email? When you're finished, you can also follow up by calling me at XXX-XXX-XXXX, if you wish to discuss further. I look forward to hearing from you.

Joe














« Last Edit: June 06, 2018, 08:42:19 PM by joer1212 »

Villanelle

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Re: Would You Invest in This Business?
« Reply #107 on: June 06, 2018, 08:28:18 PM »
The fact that your brother is throwing a temper tantrum when you---someone risking nearly 1/2 of his entire savings--are asking perfectly legitimate business questions is enough--if I didn't have enough already--to tell me he is not someone with whom I would do business.  If you say no to an additional investment when he decided you need X new growing tool or marketing strategy or whatever, will be tantrum again?  If his 1/3 (I CAN'T BELIEVE  you would give 1/3--or 27% to a guy putting up $0!--isn't enough to live on and he asks for an advance, what then?  Clearly, he is not a business guy and not a professional.  So why would you enter into professional business with him?

And if this is the AMAZING OPPORTUNITY!! he swears it is, people should be champing at the bit to invest with him.  Why doesn't he find those people instead of trying to use familial guilt?  (HINT:  Because those people have all the same reservations you do. And because your brother clearly hasn't done an actual business plan or research into similar ventures, and has virtually no business knowledge at all.)

maizeman

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Re: Would You Invest in This Business?
« Reply #108 on: June 06, 2018, 09:16:30 PM »
I think you will get one of two answers to this e-mail.

1) The equivalent of "screw you" worded either more or less politely depending on Jeff's personality.
2) A series of answers that sound plausible at first pass, but won't hold up to scrutiny, in which case you'll be in the uncomfortable position of saying bluntly "no I don't believe you."

I guess for completeness option #3 is that he answers all of your questions convincingly.

Could you still be convinced to invest in this business? If you cannot, sending the e-mail seems fruitless as the only two probably outcomes are just unpleasant for both you and Jeff and don't change anything about either of your circumstances.

Fortuitously, only a couple of days after you started your thread, I had a chance to review a combined research/business plan for a cannabis business (in Canada, not MA). It was educational. Business plan wasn't that convincing because they'd built in assumptions about the price per kilogram growing 15%/year once recreational legalization is complete. But I can now state with confidence that the "whatever the equivalent of powdery mildew is for pot" is, in fact, powdery mildew. And apparently it's a big pain to control in any large scale grow operation because lots of fungicides used in other horticultural production cannot be applied to plant tissue which is going to be smoked and inhaled.

joer1212

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Re: Would You Invest in This Business?
« Reply #109 on: June 06, 2018, 11:37:01 PM »
And if this is the AMAZING OPPORTUNITY!! he swears it is, people should be champing at the bit to invest with him.  Why doesn't he find those people instead of trying to use familial guilt?  (HINT:  Because those people have all the same reservations you do. And because your brother clearly hasn't done an actual business plan or research into similar ventures, and has virtually no business knowledge at all.)

Last I heard, he's going to sell one of his 2 houses in Massachusetts to fund the purchase of the industrial property for growing cannabis. Not sure how he's going to get paid, without escaping the scrutiny of the IRS, though. If the business is wildly successful, we're talking hundreds of thousands of dollars a year that he will have to take in cash (he's not allowed to be involved in the cannabis business because of his felony). When he starts buying cars and homes with this mystery money, I find it hard to believe the IRS isn't going to notice.

joer1212

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Re: Would You Invest in This Business?
« Reply #110 on: June 06, 2018, 11:46:55 PM »
I think you will get one of two answers to this e-mail.

1) The equivalent of "screw you" worded either more or less politely depending on Jeff's personality.
2) A series of answers that sound plausible at first pass, but won't hold up to scrutiny, in which case you'll be in the uncomfortable position of saying bluntly "no I don't believe you."

I guess for completeness option #3 is that he answers all of your questions convincingly.

Could you still be convinced to invest in this business? If you cannot, sending the e-mail seems fruitless as the only two probably outcomes are just unpleasant for both you and Jeff and don't change anything about either of your circumstances.

Fortuitously, only a couple of days after you started your thread, I had a chance to review a combined research/business plan for a cannabis business (in Canada, not MA). It was educational. Business plan wasn't that convincing because they'd built in assumptions about the price per kilogram growing 15%/year once recreational legalization is complete. But I can now state with confidence that the "whatever the equivalent of powdery mildew is for pot" is, in fact, powdery mildew. And apparently it's a big pain to control in any large scale grow operation because lots of fungicides used in other horticultural production cannot be applied to plant tissue which is going to be smoked and inhaled.

You're right, it would take a lot to make me reconsider at this point. But, I still feel that I have to do my due diligence and get answers to these questions.
« Last Edit: June 07, 2018, 09:55:27 AM by joer1212 »

Villanelle

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Re: Would You Invest in This Business?
« Reply #111 on: June 07, 2018, 04:40:41 AM »
And if this is the AMAZING OPPORTUNITY!! he swears it is, people should be champing at the bit to invest with him.  Why doesn't he find those people instead of trying to use familial guilt?  (HINT:  Because those people have all the same reservations you do. And because your brother clearly hasn't done an actual business plan or research into similar ventures, and has virtually no business knowledge at all.)

Last I heard, he's going to sell one of his 2 houses in Massachusetts to fund the purchase of the industrial property for growing cannabis. Not sure how he's going to get paid, without escaping the scrutiny of the IRS, though. If the business is wildly successful, we're talking hundreds of thousands of dollars a year that he will have to take in cash (he's not allowed to be involved in the cannabis business because of his felony). When he starts buying cars and homes with this mystery money, I find it hard to believe the IRS isn't going to notice.

Does his felony prevent him from being involved in the pot business in any way, or just prevent him from getting the license?  If it's the former, then if you invest in this plan, at best you are facilitating your brother breaking the law, and at worst you could even be committing some sort of crime yourself by helping him do something he is legally barred from doing.

To me, this also creates a very easy explanation for your "no".  You love your brother and you would no more set him up to do something illegal than you would put him in a car and hand him the keys while he's drunk.  No need to make someone jump through hoops to answer questions for which you don't actually care about the answers, given that your mind is made up anyway. If your mind is made up, your "due diligence" is pointless, and is asking this guy to do a bunch of work, if he takes it seriously, when you have no intention of following through regardless of what his work finds.

radram

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Re: Would You Invest in This Business?
« Reply #112 on: June 07, 2018, 05:50:20 AM »
I'm planning to email Jeff (the manager) the following. What do you think?

Hi, Jeff,

I've been mulling over your cannabis business proposal over the past few weeks. As you know, I've been very serious and passionate about it. But, while the prospect of becoming successful in this business excites me, I can't shake the nagging feeling that I may be overlooking some potential pitfalls.
So, I posted on a couple of online forums recently to get the opinions and insights of other people. Some of these forum members are already in the legal cannabis industry, while others have a background in business, so I value their input.
I was shocked when they almost unanimously advised me to stay away from this business. I was expecting them to encourage me and offer advice on how I can become successful at it. Here are the links:

XXXXXXXXXXXXXXXXXXXXX

XXXXXXXXXXXXXXXXXXXXX

After reading all the negative feedback I received on these forums, I came up with a list of questions and concerns that I need answers to in order to proceed with this business. There are serious financial and legal consequences for me if I make a wrong move, so it's critical that I know what I'm getting into.
I had this discussion with my brother, and he is very upset, because he was counting on me to dive into this venture headfirst. He is so upset that we haven't spoken for a week. But, I will be the one taking 100% of the financial and legal risks in this business, not him. It's very easy for him to be gung ho when he has nothing to lose. In fact, I am the only member of our team who has skin in the game, and that's very troubling to me.

Anyway, here are some of the questions and concerns I have:

(1) I am probably prohibited from participating in a cannabis business by my NY state civil service job. But, I can't confirm this with my employer because this will cause him to keep an eye on me. Is there any way around this? What are the chances that my employer will find out that I'm involved in a federally-illegal business in another state?

(2) How are we going to avoid the damage that the 280E tax law will inflict on our profits? How do you know that a CPA can mitigate the damage? Has he done this before? Shouldn't we consult with a CPA before I invest capital into this venture?

(3) How do you know that the DEA won't start enforcing federal law? My assets can get seized and I can go to prison. I don't want to play Russian Roulette with my life.

(4) My 401(k) investment company can drop me because I'm violating federal law.

(5) Jeff, I know that you run a real estate business, but have you ever been in the cannabis business? What qualifies him to run one?

(6) If you and Jay each own 10% of the company, then you will also be owning 10% of the real estate (because when we form a corporation, it owns the property, and you're part of the corporation). This wouldn't be fair, since neither of you have contributed capital for the purchase of the real estate. We need to address this issue.

(7) Will the IRS be auditing me (business and personal) every year because of my involvement in this business? What's are the consequences of this?

(8) Can the feds retroactively seize my assets, even years later, because I was involved with cannabis? When am I out of the woods? Do all my assets become tainted after my involvement with cannabis?

(9) How can my parents contribute money to this business without being legally involved and without tax consequences?

(10) How on earth will I pay Jay and my brother (who have felonies)? In cash? Is this even legal?

(11) What are the financial institutions that will take our money? Also, if these institutions are not federally insured, who insures them?

(12) What happens if and when you and Jay decide to leave the company? I know nothing about running a pot business.

(13) What if cannabis suddenly becomes legal at the federal level, and now our window of opportunity is much narrower?

(14) The compensation structure of our business is very bad. If business is doing poorly, what's to stop you and Jay from jumping ship to a competitor, who will pay you more? You have no incentive to stay during bad times.

(15) What if we lose a crop? We don't have the money to ride the storm out. It seems that we are greatly underestimating the cash reserves we will need to stay afloat in this business.

(16) How low can the price of cannabis conceivably go within a 3-5 year time frame? Can we still prosper with very low prices?

(17) Where is our detailed start-up budget and cost-of-sales projection? We seem to be guesstimating and pulling numbers from our asses. NOT a good way to start a business. We need to be more accurate.

(18) What is our specific strategy for achieving efficient regulatory compliance?

(19) Who will be our customers, and why will they buy from us instead of from other growers? How do we achieve reliable markets and distribution channels?

(20) Assuming we find these reliable markets and distribution channels, how will our clients pay us? In cash?

(21) If you and/or Jay underperform, for whatever reason, I have no ability to change your compensation or terminate our business relationship, if necessary, since you will be part owners of the business.

(22) If our business is in the red, can it make additional capital calls on the owners (with the option of revoking their shares if they don't contribute), or just to those who have contributed capital (my parents and I)?

(23) Where are we going to get insurance for fire, theft, injury/death on property, or if someone that we sold pot to kills someone in a DWI?

(24) Is it true that I will not only be liable for federal taxes (with limited deductions), but also for Massachusetts AND NY state taxes as well (because I'm a resident)?

(25) What if you or Jay, God forbid, get injured or even kidnapped on the property? How liable am I?


Jeff, I understand that we are in a time-sensitive business, but I can't afford to rush into something without knowing what I'm getting into. Therefore, when you have time, could you, please, address the above questions and concerns by email? When you're finished, you can also follow up by calling me at XXX-XXX-XXXX, if you wish to discuss further. I look forward to hearing from you.

Joe

I would make a few changes. I took the liberty to modify a few lines. Please feel free to quote me:

Dear Jeff,

No.

Joe


In all seriousness, if you are a set "no", anything else really is not fair to him. He needs to know now that you are out so he can move on and look for financing. Leave out the stuff about your brother. The long list of questions would only be useful if he follows up after your firm no. I would also refrain from putting the blame on others(like,us on this forum). Your money. Your decision. Period. Nothing wrong with that.

While we are being serious, if you are NOT yet a definite "no" after reading this thread, then just give him the money now. You are going to lose it eventually.

Case

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Re: Would You Invest in This Business?
« Reply #113 on: June 07, 2018, 06:51:20 AM »
My younger brother (37) is trying to convince me (48) to invest in a legal cannabis business in Massachusetts. He claims that I would be getting in on the ground floor of this flourishing field, so the profit potential is huge.

His plan is for my parents and I to go half each on the cost of a commercial property (suitable for a 5000 sq ft growing facility). We would be selling to dispensaries within the state, and maybe even open our own dispensary.

While my brother doesn't have money to invest in this business himself, his contribution is that he is providing everything needed to start the business and run it. He has done a lot of legwork in the past year, and has already set up a team in Massachusetts, including a superb grower and savvy local business manager (who will each be getting a 10% share of the net profit of the business). He's also found a property that meets the state's legal guidelines and that is perfect for our budget.
So, basically, he's done everything so far. I'll just be applying for the growers license (he's not eligible because he got a felony at 19) and contributing half the money to start the business. I will also put the real estate under my name. I can then presumably kick back and collect my share (almost one-third) of the profits, while the team runs everything.

As exciting as this sounds, it strikes me as a little too good to be true, so I'm naturally a little skittish. The total cost of getting this whole operation off the ground, including license fees and all expenses, is in the neighborhood of 350k (175k each from me and my parents), so we're not talking about a trivial amount of money. I would have to get a loan to come up with my share of the cash, because my money is all tied up in my 401(k) and other non-liquid accounts.

Should I take the plunge?


FYI:

- I've been working a civil service job in Brooklyn for over 9 years, and have accumulated a net worth of 600k. I worked hard to get to this level, so I'm not keen on spending my money foolishly

- My parents are willing to put up their half of the money in cash, which they will transfer to my bank account (they also live in Brooklyn)

- I have spoken to the manager and grower in person several times. They're both very professional and convincing. The manager, in particular, knows many important people in the area that can assist us

There are a lot of complexities here.  There are a couple things you should look into, but I don't know the answer to:
-how state/federal level laws may change an impact this industry
-the possibility that (like craft beer) the optimal time to get into this industry is passing

With those aside, I think this can be boiled down to your risk tolerance, your trust in your brother, and your proper rational evaluation of his capabilities:
-the old adage is generally true - don't invest what you aren't comfortable losing.  Make no mistake; you'd be taking a gamble here.
-is your brother reliable?  is he going to put everything he has into making this work?  If the answer here is 'no' or 'probably', or anything other than 'he sure will work insanely hard at making this work, including giving up vacations and his own income', then I would absolutely not invest in him.  Because you need to understand that this is what he is competing with: people who have their skin in the game and will give anything to succeed.  Being savy or interested is not enough; you have to be all-fucking-in, and if there is even a shred of doubt then you are taking on very large risk.
-is your brother competent?  Do you know him the type to be clever and aggressive at figuring out an solving problems, especially pertaining to money?  Because again, his competition will be.

The short answer is that no, this is probably a bad idea, but only you know your brother and whether you truly trust him (and not just a I-support-him-because-we-are-brothers sort of way; he is risking your livelihood).

You also say you have 600k saved (a decently large amount) but that you have a civil service job, which I'm guessing is not terribly high paying.  This makes the risk even higher for you. Additionally, you'd have to get a long (AHHHH!!!) in order to get him the money... do then you would be indebted a lender and be paying interest.

Sorry man, probably a bad idea, but if your brother is truly a miracle worker then go for it.

Linea_Norway

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Re: Would You Invest in This Business?
« Reply #114 on: June 07, 2018, 08:55:53 AM »
I recently heard someone in a podcast say that many Americans (or other western people) have a lottery mentality. They do things because they think it will win them the lottery.

The fact that OP considers this project is also lottery thinking. IF it works, I will be rich and can retire in a few years.
General rule in life: if things sound too good to be true, they usually are not.

joer1212

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Re: Would You Invest in This Business?
« Reply #115 on: June 07, 2018, 09:58:54 AM »
And if this is the AMAZING OPPORTUNITY!! he swears it is, people should be champing at the bit to invest with him.  Why doesn't he find those people instead of trying to use familial guilt?  (HINT:  Because those people have all the same reservations you do. And because your brother clearly hasn't done an actual business plan or research into similar ventures, and has virtually no business knowledge at all.)

Last I heard, he's going to sell one of his 2 houses in Massachusetts to fund the purchase of the industrial property for growing cannabis. Not sure how he's going to get paid, without escaping the scrutiny of the IRS, though. If the business is wildly successful, we're talking hundreds of thousands of dollars a year that he will have to take in cash (he's not allowed to be involved in the cannabis business because of his felony). When he starts buying cars and homes with this mystery money, I find it hard to believe the IRS isn't going to notice.

Does his felony prevent him from being involved in the pot business in any way, or just prevent him from getting the license?  If it's the former, then if you invest in this plan, at best you are facilitating your brother breaking the law, and at worst you could even be committing some sort of crime yourself by helping him do something he is legally barred from doing.

To me, this also creates a very easy explanation for your "no".  You love your brother and you would no more set him up to do something illegal than you would put him in a car and hand him the keys while he's drunk.  No need to make someone jump through hoops to answer questions for which you don't actually care about the answers, given that your mind is made up anyway. If your mind is made up, your "due diligence" is pointless, and is asking this guy to do a bunch of work, if he takes it seriously, when you have no intention of following through regardless of what his work finds.


My brother is not allowed to be involved in the legal cannabis business at all.

Also, if I get very good answers to my questions that make sense, sure, why wouldn't I invest in this business?
I do admit, however, that I raised the bar very high. Some of my questions are so hard to answer, they might as well be rhetorical. But, anything less, and I risk losing my hide, while everyone else walks away whistling.
« Last Edit: June 07, 2018, 10:09:30 AM by joer1212 »

patchyfacialhair

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Re: Would You Invest in This Business?
« Reply #116 on: June 07, 2018, 10:01:20 AM »
Because one of your key employees (your brother) isn’t allowed to be a part of it. You know, the person whop pitched you the idea in the first place.

MJseast

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Re: Would You Invest in This Business?
« Reply #117 on: June 07, 2018, 10:13:05 AM »

Also, if I get very good answers to my questions that make sense, sure, why wouldn't I invest in this business?

Wow. Really? The business manager didn't even know about 280E! And you're going to trust his answers why?

If you really want to be in this industry, go seek out people with actual experience and business savvy and place your bet on them, and not an uninformed, inexperienced team who doesn't even get the basics.

The business manager did not even give you a business plan or pro forma for you to validate on your own. I cannot believe you are even still entertaining this.

maizeman

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Re: Would You Invest in This Business?
« Reply #118 on: June 07, 2018, 11:00:13 AM »
MJeast's point is an important one. Right now you are confounding "should I trust all of my money to these particular people?" and "should I invest in starting a business (potentially involving marijuana?"

If you find that you really want to put $175,000 of your own money into launching a business, you can certainly find a number of options ranging from businesses you'd create and run yourself to being an investor/silent partner in a business run by a team with proven track records and everything in between. If you specifically want to invest in the field of marijuana, that whole range of options is probably still open to you as well.

So try to separate out those two questions in your head.

Frankies Girl

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Re: Would You Invest in This Business?
« Reply #119 on: June 07, 2018, 12:45:39 PM »
Dude, you came into this hoping to get some good support, but discovered that your brother/friends of your brother are actually just spitballing the idea of starting up a successful business - literally thinking because they partake or have grown a few plants over the years, that this makes them not only qualified, but destined for greatness if they could only find startup capital (suckers) to front the business.

You've had absolute, concrete proof that they don't know what they're doing. And that there are so many red flags that this thread looks like a flag convention where they've invited the president of flags and he brought his entire red flag collection with him. Which is my round about way of saying there are A FUCKTON OF FUCKING RED FLAGS.

It's almost at this point where I kind of wonder if you aren't the stoner brother trying to figure out all the possible arguments and angles that someone rationally would say this is a Bad Idea, so you can come up with a good smokescreen (lol) to avoid the truth. He can't even legally be an employee. Neither can the dank pot grower dude. The two guys that want to run this little enterprise legally can't be even present in the property or take on any legal responsibilities and expect you to be the front and risk your name, reputation, job, money and possibly freedom. And your brother's reaction to you being concerned in the face of all of that is to throw a fucking tantrum? /END OF STORY. THERE'S YOUR ANSWER/

I keep thinking no one could be this desperate to be taken in as you seem to be. You're just asking for one tiny little reason to believe that despite the Mount Everest of evidence against, one little nugget of "maybe this could work in some alternate dimension" will swing you enthusiastically into going ahead with this absolute shitpile of an idea.

If you keep giving them chances to talk you into it, you know what's going to happen? They're going to talk you into it.

But they will fail, and you will lose your investment, and likely end up with a host of other headaches besides. All because you can't tell your lazy, stoner, felon of a brother, "I love you, I'll be glad to give you a few bucks to help you out for a month or two while you find a job that you can stick with and earn your own way, but I'm not comfortable with giving you half or more of my very hard earned money and hitting up our parents for the same so you can go play Weed Wizard™ with your friends."

Seriously, for your own sake and your parents, say no and move on. If you want to give them your money, do it and realize it likely would have been more profitable to have just set it on fire because at least for the few minutes it burned, it would provide some heat and light. But don't expect this scenario with your brother and his buddies to play out in your favor at all.


SpreadsheetMan

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Re: Would You Invest in This Business?
« Reply #120 on: June 07, 2018, 01:02:46 PM »
Awesome post @Frankies Girl!

This thread is really the gift that keeps on giving: I can hardly wait to see what Smokey and the Bandit(s) come up with next...

patchyfacialhair

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Re: Would You Invest in This Business?
« Reply #121 on: June 07, 2018, 01:29:04 PM »
That was an epic post, FG. Love it.

OP one more thing: in the state where I live, people in the business have to deal with frequent, unnanounced visits from regulators. About the time a regulator visits your grow operation and sees two felons working the crops is about the time you'll see your investment dry up instantly, and you'll probably be charged with a crime right then and there.

THIS IS A HORRIBLE IDEA WITH LITERALLY NO REASON TO KEEP GOING.

Jaayse

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Re: Would You Invest in This Business?
« Reply #122 on: June 07, 2018, 02:55:12 PM »
...

Should I take the plunge?


FYI:

- I've been working a civil service job in Brooklyn for over 9 years, and have accumulated a net worth of 600k. I worked hard to get to this level, so I'm not keen on spending my money foolishly

...
I've read through this whole thread and been following along and will add my voice to the group as a strong NO. 

Run, and run fast in the other direction if you do not want to spend your money foolishly.  Your brother has spent the last 18 months coming up with a dream, not a real business plan.  Of course it will hurt him for you to not back his dream, but for yours and your parents sake do not consider this. 

https://www.sba.gov/offices/district/az/phoenix/resources/sba-recommended-business-plans-length

To quote a little:
Quote
From SBA’s point of view, a business plan needs to be whatever length is required to excite the financing source, prove that management truly understands the market, and detail the execution strategy. From various surveys done by many different organizations, it has been stated that 25 to 100 pages of information is the minimum length in which to accomplish this, depending on various factors. These include targeted markets (1 to 2 pages), difficult assumptions or non-industry data (1 to 3 pages), industry risk (1 page), poor credit factors that require additional explanation or documentation (2 to 4 pages), and financing source (1/2 to 1 page). Using the SBA model below on page two, a business plan can range in size from 38 to 50 pages for a basic plan to as high as 80 to 100 pages for complex plans.

Why does SBA care? We are concerned that any less than this may cause the capital source to think the business model has not been fully thought through, or they simply did not have enough information to make a good credit decision.

A “start-up” business plan should be a realistic view of the expectations and long-term objectives for the new venture. It should provide the framework within which it must operate and, ultimately, succeed or fail. For entrepreneurs seeking external support such as financing, the plan is the most important sales document that they are ever likely to produce, as it could be the key to raising funds. Preparation of a business plan will not guarantee success in obtaining a loan or mobilizing support, but the lack of a sound plan that cannot tell the story will undoubtedly fail.

MoStache

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Re: Would You Invest in This Business?
« Reply #123 on: June 07, 2018, 05:08:24 PM »
OP, it's almost hard to believe you're being genuine at this point.  If so, it's pretty clear at this isn't a business decision and it's not a financial decision.  This is an emotional decision and whatever you decide to do you're going to need some emotional support beyond what you can get from internet strangers.  Please, please, please go talk to a therapist (or 3) before you make any decision here.  Consider it part of your "due diligence" before investing in this business.

Suit

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Re: Would You Invest in This Business?
« Reply #124 on: June 07, 2018, 06:01:16 PM »
OP, have you spoken to a criminal defense attorney and an attorney experienced in tax/business law? Your questions about liability and tax/business structure would be better geared towards professionals in those areas. Trust the experts and don't rely on representations from someone who benefits by giving you answers that you want to hear.

Villanelle

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Re: Would You Invest in This Business?
« Reply #125 on: June 07, 2018, 06:59:44 PM »
"Look Bro, I love you and I want to see great things for you.  But there is no way I can risk $300k on a completely unflushed out business model, and one at which you legally aren't even allowed to work.  That could get both of us in massive trouble and we both risk prison time and asset forfeiture. This us just not a good idea, and I wont' do it ti myself, our parents, or you.  I'm sorry, but that's my final answer."

joer1212

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Re: Would You Invest in This Business?
« Reply #126 on: June 08, 2018, 12:19:33 AM »
Guys, you may think I'm naive (or crazy) to have even considered the cannabis business, but my reasons were as follows:

(1) Recreational marijuana in Massachusetts is brand new; so new, in fact, that they haven't even handed out licenses to growers and dispensaries yet. My brother and I would be among the first to get in on this gold rush.

(2) According to Jeff (the manager) and several other sources I spoke with, there will be a cannabis shortage in the first couple of years in Massachusetts. That's when we establish ourselves and make our money.

(3) The cost of breaking into this industry in Massachusetts is considerably low than in mature markets, such as California or Colorado. For example, we can get a 5,000 sq ft. commercial property for about 70k. The same property in other cannabis-legal states would go for over 300k. 

(4) https://www.washingtonpost.com/news/powerpost/wp/2018/06/07/republican-senator-confident-trump-will-back-bill-to-protect-states-rights-on-marijuana/?noredirect=on&utm_term=.f08ed3bf879e

Anyway, this is all moot at this point. I emailed Jeff (the manager) the letter with my questions, and this is the reply I got an hour later:

14) The compensation structure of our business is very bad. If
> business is doing poorly, what's to stop you and Jay from jumping
> ship to a competitor, who will pay you more? You have no incentive
> to stay during bad times.

Jeff

--
Jeff Smith
Smith Jr Real Estate
46 Main St Box 9
AnyTown, MA 01773
555-555-5555
RE Lic # 99999999999
www.JeffSmith88*.com
jeff@JeffSmith.com


Is he trying to tell me that he can only answer question #14 by calling him? What about the other 25 questions??
I'm out.
« Last Edit: June 08, 2018, 01:04:51 AM by joer1212 »

Villanelle

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Re: Would You Invest in This Business?
« Reply #127 on: June 08, 2018, 01:53:23 AM »
I don't think you are crazy for considering the cannabis business, but I think you are crazy for considering entering into it with people who are clearly ill-prepared, have no business experience and *ARE LEGALLY BARRED FROM BEING IN THE CANNABIS BUSINESS*!!

I don't know what the email means, and I don't think it matters.  If you continue to waste his time, knowing that you have no intention of entering in to this business regardless of his answers, you become the villain in this piece. 

"Jeff, on further reflection, I'm just not comfortable with too many aspects of this plan.  I wish you all the best going forward, but unfortunately, I can't be a part of this endeavor".
« Last Edit: June 08, 2018, 01:57:27 AM by Villanelle »

mrmoonymartian

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Re: Would You Invest in This Business?
« Reply #128 on: June 08, 2018, 02:24:29 AM »
Is he trying to tell me that he can only answer question #14 by calling him? What about the other 25 questions??
He's saying your concerns are unimportant, except that he agrees it is very important that he can take as much of your money as possible regardless of how the business goes.

Linea_Norway

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Re: Would You Invest in This Business?
« Reply #129 on: June 08, 2018, 03:53:02 AM »
OP, I think you should remove Jeff's personal data from your post. It is not relevant for us.

maizeman

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Re: Would You Invest in This Business?
« Reply #130 on: June 08, 2018, 05:31:38 AM »

--
Jeff Smith
Smith Jr Real Estate
46 Main St Box 9
AnyTown, MA 01773
555-555-5555
RE Lic # 99999999999
www.JeffSmith88*.com
jeff@JeffSmith.com


I enjoy that you took the time to anonymize all the data in his signature rather than omitting it.

Glad you're finally out.

the_fixer

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Re: Would You Invest in This Business?
« Reply #131 on: June 08, 2018, 06:21:56 AM »




Anyway, this is all moot at this point. I emailed Jeff (the manager) the letter with my questions, and this is the reply I got an hour later:

14) The compensation structure of our business is very bad. If
> business is doing poorly, what's to stop you and Jay from jumping
> ship to a competitor, who will pay you more? You have no incentive
> to stay during bad times.

Jeff

--
Jeff Smith
Smith Jr Real Estate
46 Main St Box 9
AnyTown, MA 01773
555-555-5555
RE Lic # 99999999999
www.JeffSmith88*.com
jeff@JeffSmith.com


Is he trying to tell me that he can only answer question #14 by calling him? What about the other 25 questions??
I'm out.

Guessing he was too baked to respond.

https://youtu.be/OJM8yJTn_I0

Probably good that you did not invest. All of your profits would go up in smoke

https://youtu.be/CWxgfTMLtc0

Sent from my Pixel 2 XL using Tapatalk


ysette9

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Re: Would You Invest in This Business?
« Reply #132 on: June 08, 2018, 12:53:15 PM »
Wow, what a ride. I am so glad you are out. Keep us posted if you hear anything further about this wild dream!

joer1212

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Re: Would You Invest in This Business?
« Reply #133 on: June 09, 2018, 01:40:47 AM »
OP, I think you should remove Jeff's personal data from your post. It is not relevant for us.

It's not his real data.

joer1212

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Re: Would You Invest in This Business?
« Reply #134 on: June 09, 2018, 01:48:13 AM »
Not to further extend this discussion, but I'm curious, guys. What do you think is going to happen if my brother starts this business without me? What exactly is going to cause him to fail, in your opinion? Be detailed and specific.

joer1212

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Re: Would You Invest in This Business?
« Reply #135 on: June 09, 2018, 01:54:36 AM »
Wow, what a ride. I am so glad you are out. Keep us posted if you hear anything further about this wild dream!

Will do, but one of 2 things are likely to happen: a) my brother makes a killing in this business, and I'm going to kick myself for the rest of my life (and curse this forum forever :)), or b) he's going to fail, and I will be relieved that I didn't make the same mistake (and forever worship the wisdom of the MMM members).
« Last Edit: June 09, 2018, 01:59:48 AM by joer1212 »

ShoulderThingThatGoesUp

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Re: Would You Invest in This Business?
« Reply #136 on: June 09, 2018, 04:35:44 AM »
Not to further extend this discussion, but I'm curious, guys. What do you think is going to happen if my brother starts this business without me? What exactly is going to cause him to fail, in your opinion? Be detailed and specific.

1. He’s not legally allowed to work there.
2. He has no relevant skills.

YttriumNitrate

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Re: Would You Invest in This Business?
« Reply #137 on: June 09, 2018, 06:11:24 AM »
Not to further extend this discussion, but I'm curious, guys. What do you think is going to happen if my brother starts this business without me? What exactly is going to cause him to fail, in your opinion? Be detailed and specific.

I'll go with A) his start-up times will take longer than he expects, B) his production costs will be higher than he expects, and C) his sales will be less than he expects. Nothing really specific to the marijuana business.

YoungInvestor

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Re: Would You Invest in This Business?
« Reply #138 on: June 09, 2018, 06:37:24 AM »
The fact that neither the brother, the manager not the grower is able to put up 100k would be of too much concern to me.

3 guys in their thirties that can't put 300k together surely aren't the best managers around.
« Last Edit: June 09, 2018, 06:40:34 AM by YoungInvestor »

maizeman

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Re: Would You Invest in This Business?
« Reply #139 on: June 09, 2018, 06:55:24 AM »
Wow, what a ride. I am so glad you are out. Keep us posted if you hear anything further about this wild dream!

Will do, but one of 2 things are likely to happen: a) my brother makes a killing in this business, and I'm going to kick myself for the rest of my life (and curse this forum forever :)), or b) he's going to fail, and I will be relieved that I didn't make the same mistake (and forever worship the wisdom of the MMM members).

As others have said, your brother isn't legally allowed to even be involved in the business. But let's put that aside.

If someone else puts up the money on the same terms you were asked for, and your brother still gets 10% of profits (before taxes), and doesn't pay any taxes himself because legally he's not an owner or employee:*

1) The business will take longer to get up and running and cost more than budgeted. It may not get past specific legal hurdles. If it gets past the legal hurdles it may run out of money before it ever sells an ounce of marijuana.
2) If it gets past the legal and financial hurdles and starts selling marijuana, it will find that every month unexpected expenses pop up (because they always do, and there was no budget for contingencies), so it may never turn a profit.
3) If the business turns a profit, your brother gets his 10% right off the top. Over time there is downward pressure on the price of marijuana, like there has been in every state. Some businesses (the ones with access lots of capital) try to expand production to increase economies of scale and stay profitable. This drives the price down even faster and more and more businesses are driven into operating at a loss or closing up shop.

But the most important thing to remember is that, from the way your proposed business was structured, even if the business defies all of the odds and makes enough profit to pay your brothers a few $10,000 or even a few $100,000, the person who put up all the original capital could still end up losing money (particularly after taxes).

It's important to remember this, because you seem to be thinking that if your brother finds another investor and goes ahead and makes money, it means you would have made money. But the real question is, would the investor have made money? And if so, were they offered a deal similar to the one offered to you or something more reasonable?

*This is tax fraud, but he can tell himself he never got a W-2 or 1099 form, which will work right up until he and/or the business is audited, at which point it'll blow up in his face.

ysette9

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Re: Would You Invest in This Business?
« Reply #140 on: June 09, 2018, 07:32:43 AM »
Wow, what a ride. I am so glad you are out. Keep us posted if you hear anything further about this wild dream!

Will do, but one of 2 things are likely to happen: a) my brother makes a killing in this business, and I'm going to kick myself for the rest of my life (and curse this forum forever :)), or b) he's going to fail, and I will be relieved that I didn't make the same mistake (and forever worship the wisdom of the MMM members).
An important thing I got out of my decision analysis classes is the concept that a good or bad decision is independent of a good or bad outcome. You can make good decisions and get unlucky and make bad decisions and get lucky. You need to judge the decision by what was the best information available at the time.

If your brother makes money then he will have gotten lucky, pure and simple. It is still a bad decision for him and for you to pursue this.

maizeman

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Re: Would You Invest in This Business?
« Reply #141 on: June 09, 2018, 07:46:11 AM »
Wow, what a ride. I am so glad you are out. Keep us posted if you hear anything further about this wild dream!

Will do, but one of 2 things are likely to happen: a) my brother makes a killing in this business, and I'm going to kick myself for the rest of my life (and curse this forum forever :)), or b) he's going to fail, and I will be relieved that I didn't make the same mistake (and forever worship the wisdom of the MMM members).
An important thing I got out of my decision analysis classes is the concept that a good or bad decision is independent of a good or bad outcome. You can make good decisions and get unlucky and make bad decisions and get lucky. You need to judge the decision by what was the best information available at the time.

If your brother makes money then he will have gotten lucky, pure and simple. It is still a bad decision for him and for you to pursue this.

That's a very important point.

If someone takes their entire life savings into a casino and puts it all on 33 on a roulette wheel and walks out with 35x their net worth, that doesn't make it a good decision.

If you paid for health insurance last year, and didn't ever have to visit a doctor of fill a prescription, that doesn't make your decision to buy health insurance a bad decision.

joer1212

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Re: Would You Invest in This Business?
« Reply #142 on: June 09, 2018, 10:49:56 AM »
My brother is standing next to me right now. He wants to know how much experience any of you guys have in the cannabis business, and if you're directly involved in it, or just know a friend in the business?
« Last Edit: June 09, 2018, 10:55:30 AM by joer1212 »

patchyfacialhair

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Re: Would You Invest in This Business?
« Reply #143 on: June 09, 2018, 11:09:03 AM »
This fucker is a troll.

joer1212

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Re: Would You Invest in This Business?
« Reply #144 on: June 09, 2018, 11:23:24 AM »
This fucker is a troll.

No, I'm not. My brother was actually here, and he asked me to post that question. I've already decided that I'm not going to invest in the cannabis business, because there are just too many variables and uncertainties (and because I didn't like the vague response the manager gave to my email. It made me lose faith in his abilities. A more professional response would have been "you would need to seek the advice of a lawyer to answer some of your questions"). Despite the fact that I'm out, I think my brother asked a valid question.

ysette9

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Re: Would You Invest in This Business?
« Reply #145 on: June 09, 2018, 11:24:38 AM »
I believe if you scroll up the thread someone already posted about his involvement in the industry over several posts. I don’t remember which user it was though.

ysette9

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Re: Would You Invest in This Business?
« Reply #146 on: June 09, 2018, 11:27:28 AM »
Looks like MJseast was the one posting from a position of experience

Villanelle

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Re: Would You Invest in This Business?
« Reply #147 on: June 10, 2018, 12:27:26 AM »
Not to further extend this discussion, but I'm curious, guys. What do you think is going to happen if my brother starts this business without me? What exactly is going to cause him to fail, in your opinion? Be detailed and specific.

1) he gets arrested, or some of his partners get arrested because they are doing something illegal. a( and no, i'm not referring to federal pot laws).

2) They screw up the tax filings, because the don't seem especially thorough on concerned with the minutia of running a business.

3) They open a store but don't bother with marketing, branding, customer service, creating a professional vibe, or all the other things that will drive business, so they don't have many customers.

4) They can't get past the start up phase during which a vast, vast majority if businesses lose money before the few that are successful actually see that success and they either quit before they get to that point, when their unrealistic dreams of rolling in cash from month 1 fail to materialize, or they can't sustain their lives with no income and they have to move on. 

5)They grow tired of it all when they realize that running a business means doing payroll and managing employees and checking inventory and contacting suppliers and cleaning store counters and doing accounting and creating mailing lists. 

6) I'm not really going to continue, but certainly I could go on.

Look, by continuing to indulge your brother, you are giving him false hope and allowing the conversation to continue.  I guess you are talking again??, assuming you aren't a troll, but every time you go past a hard "no", you simply allow this conversation to continue.  If your brother wants more info, he should work to find it.  That's part of being a business owner.  If he can't be bothered and has to have his brother do it, that yet another sign he's just not prepared or dedicated enough.  He wants the glamour and imaged riches of this, but not the hard work.  Or at least not the hard work that doesn't interest him, like, you know... actually looking at how small businesses work and figuring it out.  He wants someone to hand it to him.  He doesn't want to work to answer all the questions you created, and more.  He's hoping to fly by the seat of his pants and  dreaming that this will lead people to hand their money to him hand over fist.   And you are enabling that every time you don't tell him to do his own research because you are OUT.

robartsd

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Re: Would You Invest in This Business?
« Reply #148 on: June 11, 2018, 08:29:01 AM »
I've been in the legal cannabis industry for years. I hate to tell you, but are already a little too late to the game to be able to come in without any experience and be able to turn a profit in the first 3-5 years.