The butterfly effect refers to the ability of one incident being able to make huge impacts on the future. This sentiment is echoed in the theorized capability of a butterfly’s wingbeat causing a hurricane on the opposite of the world. While this idea is certainly ominous, when applied to business it has an altogether different (and more hopeful) outlook. The butterfly effect in business promotes the notion that small acts can have huge results, with a focus on a firm’s communication with people.

The Golden Rule

When the people that interact with a firm are treated well and feel valued, they are much more likely to have a positive attitude toward the firm, and in turn pass this sentiment on further down the line. This continues until a positive spider web of experiences evolves into something far larger (not unlike that of a wing-flap’s evolution to that of a tornado). This approach in business is known as “Stakeholder Theory”, whereby businesses place importance on the various people within their business and beyond (customers, suppliers and employees) and see them as entities to be valued, rather than objects from which the highest price, the cheapest cost or the lowest wage can be extracted. The immediate effects of this are obvious; a happy customer who feels like they’re really cared for is much more likely to become a patron. A supplier who isn’t constantly in turbulent negotiations surrounding prices will be much more accommodating in the case of invoice delays and may even opt to provide trade discounts in the future. This theory boils down further to ‘The Golden Rule’: treat people the same way that you want to be treated. An employee who knows they are valued is sure to put in a good shift and the idea that they have a future with the firm further reinforces the sentiment to work hard. It’s no wonder that the companies that either actively or subconsciously incorporate the butterfly effect into their businesses are some of the most successful in the world.

Weathering the Storm: The Firms With Wind in Their Sales

Finance and capital management firm Workday prides itself on its ability to create a distinct workplace environment in which their employees can thrive. This is in part thanks to the creation of a globalized outlook in its company culture. This, in simple terms, means that the firms six ‘core values’ (which unsurprisingly contains employees, customer service and integrity) allow for employees to feel a connection or rather ‘culture’ which goes beyond their shared office space. This is particularly useful in the firm’s ability to create global teams of employees from different bases due to this universal culture. By ensuring employees feel valued on an individual scale, the company can in turn enable cooperation on an international scale, which culminates in Workday being ranked as the best place to work in Ireland.

The French beauty giant Sephora places a great emphasis on how it values its customers. The company appreciates how beauty-care products are very much personal products, shaped by personal views. Sephora feels it is only right for customers to therefore be able to engage in a personal experience. The beauty behemoth has introduced the ‘Sephora’s Virtual Artist’, where patrons can try on products from multiple categories using their smartphone camera. The brand has strived to make strong links between themselves and the wider beauty community thanks to the benefits made possible through digitalization. This has culminated in their ‘Beauty Insider Community’, which fosters rapport between company and customer. The brand’s embrace of the digital age is best reflected in their collaboration with Google Home to create voice recognition powered beauty assistant, which provides tips on beauty and skincare. Sephora have recognized the opportunities from digitalization, but also their responsibility in providing both a valuable product and service to their customer base. This is best highlighted in the firm’s policy of not paying a commission to employees. This has two effects; customers can be certain that the advice that they receive is genuine, as agents have no incentive to prioritize one product over another. Agents in many cases enjoy this policy as it means they can be more comfortable and genuine in their workplace- thus creating an overall better work environment.

Patagonia, as I have written before, are renowned for their stakeholder approach to customers, employees and, namely, suppliers. The retail firm has stringent codes to ensure not only that they treat their suppliers fairly, but also that their suppliers are ethical companies themselves. The latter is particularly important in the context of the butterfly effect; although Patagonia may not be dealing directly with poor third party supplier relations, they may suffer the repercussions of scandals which affect those firms, as seen with Primark and the Rana Plaza building collapse in 2013.  Patagonia not only ensures that their suppliers receive a fair price for their product, but they also monitor the minimum wages of the different countries from which they source and ensure these rules are being adhered to. The company also audits the goods it receives to ensure compliance with its social and environmental standards and is a founding member of a plethora of multi-stakeholder initiatives. While the effects of Patagonia’s activities may not seem at first obviously beneficial to suppliers, it does provide a platform from which they can engage in more business, as an indirect accreditation of manufacturing from Patagonia.

It’s the Little Things

The companies mentioned above are great examples of how small actions can give way to movements far greater than ever imagined, by placing importance on the little things. The same fact holds true for malpractice. All companies can heed the warning characterized through the butterfly effect, whether that be for better, or for worse.

As the push for legalisation increases around the world, the legal marijuana industry is experiencing a period of substantial growth for both medical and recreational use. Investors, manufacturers, and researchers agree that the market holds the potential to be one of the most lucrative in the world, but questions still remain as to what form the industry will take. Forecasts predict that the industry could produce up to $200 billion in revenue per annum by 2030, but with a large element of this hinging on the US market’s ability to overcome stern legal barriers, the future is still uncertain. Consequently, there may never again be a more critical juncture for the domestic US industry than the 2020 US elections.

State and Federal Split

For the citizens of New Jersey, Arizona, South Dakota, Montana and Mississippi, the November 3^rd ballot presents not only the chance to support their preferred presidential candidate, but also the opportunity to shape marijuana policies in their states. Already, marijuana is legal either recreationally or medically in 33 U.S. states. Combined with the plausible passage of the upcoming referendums, the message to Washington is clear; states and their constituencies want to see marijuana legalization at a central government level.

Federally, the use of marijuana has been outlawed in the US since 1970 under the Controlled Substances Act. Despite an evolving social acceptance of marijuana at state level and a greater understanding of its medical advantages, marijuana remains classified as a Schedule I Drug, reserved only for substances deemed to be prone to abuse and without medical benefits. Strict categorisation as a controlled substance acts as a major growth inhibitor for both legal dispensaries and the domestic industry as a whole.

Classification Consequences

In the first instance, cannabis firms that turn a profit are being subject to Section 280E of the U.S. tax code which deprives firms selling federally illicit substances of corporate tax breaks, effectively subjecting businesses in the marijuana industry to extremely high corporate tax rates.

Additionally, Schedule I classification impedes firms from vertically integrating their operations in multiple states in an economically efficient manner. Multistate marijuana operators are prevented from carrying their products across state borders under federal law, meaning that processing facilities are required in any state in which a business hopes to establish a retail presence.

However, the biggest impediment on the domestic industry’s growth proliferation lies in the limited banking opportunities available to US based businesses. Technically, marijuana operations in legalised states are committing a federal crime, leaving large federally backed financial institutions fearful of potentially facing money laundering charges as a result of dealing with such businesses. Besides the huge financing difficulties that businesses therefore face, this also leaves many companies bearing the huge risks of operating strictly in cash. The clash between state and federal law has prompted financial institutions to be trapped between satisfying the needs of their local marijuana enterprises and the threat of federal enforcement action, with the marijuana industry frequently coming out second best.

Political Party Positions

When Donald Trump was elected US president in 2016, there was optimism among marijuana industry stakeholders that industry deregulation would be one of the many rollbacks introduced by the seemingly pro-small government president. However, what has occurred over the course of his tenure in the Oval Office thus far has proved nothing but disappointing for industry insiders. Trump has taken a standoffish approach to the subject, supporting states in deciding their own marijuana regulations but side stepping the issue at a federal level. Furthermore, the appointment of Mitch McConnell, an outspoken critic of the marijuana cause, as leader of the Republican senate majority threw cold water on any industry hope for deregulation.

On the opposite side of the table, Democratic presidential candidate Joe Biden and running mate Kamala Harris have confirmed their commitment to decriminalising marijuana at a federal level; a commitment that follows earlier suggestions of democratic intentions to deregulate the industry. Last Autumn, the Democratically controlled House of Representatives passed a bill that would allow banks to serve legitimate marijuana businesses in legalised states. Ultimately, however, the bill suffered a swift death when it appeared before the Republican senate.

The Blue Wave

The re-election of Donald Trump and the maintenance of Senate control by the Republican party will, in all likelihood, dash industry hopes of deregulation. This will continue to enable states to determine their own laws on medical and recreational marijuana legalisation, while the drug remains Schedule I classified at a federal level. If the industry is to achieve its immense domestic growth potential in the US, a Blue Wave must reach across all aspects of the election. While a Biden victory is pivotal, his presidency is effectively worthless to US marijuana businesses without the legislative support of the Senate. A Mitch McConnell led Republican Senate will undoubtedly maintain the status quo, shattering any policy reform hopes for the next presidential term at least.

To be clear, will a blue wave entail legalisation for the marijuana industry at federal level? – In all likelihood, no. Will it signify decriminalisation? – Very possibly. But, will a Democratic sweep of the Senate and the White House result in a much simpler regulatory environment for legitimate marijuana operations? – Absolutely! And therein lies the opportunity for scale and big returns in the domestic industry. When marijuana companies can begin to bank legitimately and pay tax on par with other multi-billion dollar industries, that is when institutional investment will begin to flood into the industry, no longer fearful of the sectors ferocious volatility.

Lows of the High

The opportunities borne out of deregulation don’t come without their downsides, however. Currently, growing marijuana in the US is extremely profitable because of the fact that it is federally illegal, yet tightly regulated. High risk is simply borne in the nature of its production. But, as was recently evident in Canada, deregulation will give rise to widespread production across the board and, ultimately a plunge in retail prices. Furthermore, marijuana will maintain the inherent risks associated with all commodities, regardless of their regulatory status. These risks may even grow in the short run with the emergence of new poorly disciplined producers in the sector with no industry experience.

Decision Time

At the end of the day, it is the US voters that will dictate the future of the world’s largest legal marijuana market. A vote for the Republican party is a vote for the status quo, maintaining the industries position on the backburner for the foreseeable future. Alternatively, a Democrat vote clears the pathway for federal legalization and massive growth potential across the sector. Regardless of the outcome, the forthcoming elections will at least provide institutional investors with a clearer impression of the tumultuous industry’s future.