Survival in a new industry: marijuana, venture structure and outcomes

Abstract

Purpose

The purpose of this study is to explore how new firms enter a new industry and which structure will support survival. Essentially, the study examines the extent to which new firms choose to be broad with regard to the industry supply chain and deep with regard to their market presence. Based on these two structural decisions, each one is examined independently and in conjunction to discover which aspects support survival.

Design/methodology/approach

A quantitative approach was adopted, consisting of using data supplied by the state of Colorado. More specifically, the study draws on empirical data that identifies which license type (grower, manufacturer and retailer) each firm chose to get and how many retail outlets the firm chose to operate.

Findings

The findings reveal that firms that cover the breadth of the supply chain are twice as likely to survive, while a broad market presence increases the risk of exit by 2.5 times. When the two factors were combined, it was firms with broad integration and deep market presence that had the highest chance of survival, as opposed to firms with intuition. A deep market presence seemed to accentuate the effect of integration, increasing the risk when the firm was not integrated, while increasing the survival rate when the firm was integrated.

Research limitations/implications

This industry is quite new and afforded a unique opportunity to examine the impact of firm structure on survival. However, it may not be generalizable to other industries.

Practical implications

The present analysis argues that firms must adopt a holistic approach to their firm structure, because there are combinatorial effects at play. That is, while one specific strategy may increase survival, other strategies may impact firm survival. Examining and understanding the interplay of firm decisions are critical for firm survival.

Originality/value

Because of the lack of the formation of new industries, the authors’ understanding of the impact of firm structure on survival is limited. This unique context afforded the opportunity to empirically examine how firms can increase their chance of survival based on two aspects of firm structure: the breadth of the supply chain and the depth of the firm’s market presence.

Citation

Nicholas, K., Sproul, C.R. and Cox, K. (2021), "Survival in a new industry: marijuana, venture structure and outcomes", Journal of Business Strategy, Vol. 42 No. 2, pp. 99-105. https://doi.org/10.1108/JBS-10-2019-0202