The Line Between Fame & Infamy
Staying on the right side of hype
Hype – the magical and unpredictable ingredient to soaring successes and spectacular failures.
Due to the exciting nature of the legal cannabis and psychedelics markets, and their promise of disruption, health and wealth, hype plays such a massive role in their growth trajectory.
I’m not anti-hype, I understand the natural human instinct to lean into momentum, and that sometimes you need forces far larger than an individual person or company to push a complex societal shift or regulatory change over the line. I think it’s a fascinating concept, but often a double-edged sword.
The headline-grabbing stories of successes and failures are hard to ignore. In many cases, only a few brash decisions, a couple of months, or a handful of minor mistakes can make the difference between landing on the good side or the bad side of investors, the press, and even the regulators.
Today I’m looking at some of the case studies that have influenced my understanding of unpredictable hype.
Before we begin, make sure to:
Fame vs Infamy
I started writing this blog before I read that Adam Bierman interview in Business Insider. Adam was the 20-something-year-old CEO of MedMen, an overvalued and underequipped US cannabis retail business lauded as ‘the Apple store of cannabis’, but mired in WeWork-esque controversy.
In 2018 MedMen commissioned none other than Spike Jonze to direct a multi-million dollar advert to run during the Super Bowl. The ad was pulled by NBC, losing the company all the time and money they invested. What struck me about the interview was a comment he makes that highlights the fine line between fame and infamy you see in high-risk, nascent sectors.
"You've got investors saying, 'How can you spend millions of dollars on a commercial that gets a thousand views on YouTube?'" Bierman said. "It could have just as easily been the story that MedMen ran the first weed commercial in the history of the Super Bowl."
It’s easy to point at this lavish creative budget and say, ‘well hold on a minute, Adam. Spending millions of dollars of investor money on an advert is reckless’, but that misses the point. The majority of investors behind companies in risky growth sectors are encouraging founders to bring them ungodly returns on increasingly tighter timelines. The pressure is real.
‘til you make it
Despite the remarkable progress being made in healthcare – highlighted by the pandemic vaccine response – trust in pharma and biotech companies feels like it is at an all-time low. One major story, that most will be familiar with, that illustrates wider issues of trust and credibility in the healthcare sector, is that of Theranos.
The Theranos story is extremely sad, for the patients, staff and investors who bought into their vision. The damage a fraud like that does to industry confidence is hard to measure. The company promised innovative, life-saving medical technology in the form of rapid blood tests. Not even a cap table featuring some of the most influential people in the US; Betsy DeVos, Rupert Murdoch, and the family that founded Walmart could deliver on these promises, and the world soon found out.
Beyond justice for its investors, the case has inspired a lot of introspection on venture capital practice. There has clearly been a tolerance of overly ambitious founders and the lines between “fake it til you make it” and simply “fake it” have blurred in some cases. The debate about how to avoid future Theranoses rages on.
Importantly these stories have exposed the stock-promotion-at-all-costs approach employed by some companies, shining a light on the oftentimes fine line between common business practice and fraudulent activity.
If Theranos had eventually found the solution they had promised, rather than losing all their investors’ money, they may well have been lauded as heroes, in certain camps. It was the fraudulent tests that played with real people’s test results and lives that cemented Theranos’ place on the wrong side of the line. Consumer protection is an immovable right in modern society and rightly prioritised in this case.
When trying to understand the complexity of hype it’s important to reflect on the pioneering companies that did ‘make it’ from extremely risky starts – some of them being both the scorn and golden child of analysts at various points in their corporate lifetimes.
There are plenty of technology and biotech companies who've been saved by ambition and hype without crossing the line into blurring or falsifying data.
The most widely known recent example is Tesla, but I’m not here to write about Elon Musk. In the cannabis sector, there was a time when GW Pharmaceuticals, the British biotech that exited for a record-breaking $7.2bn to Jazz Pharmaceuticals in early 2021, had moments when it looked unlikely to succeed.
Before moving to Nasdaq in 2013 the company was starved of cash in London. Once there, US investors began to take an interest in their cannabis drug development. The US cannabis bubble – which energised retail investors – may have saved their business.
Former CEO Justin Gover noted that “[GW’s blockbuster product] Epidiolex would not exist today without US investors because we simply could not have raised the cash” in an interview with the Financial Times in 2016.
Profits alone don’t create monsters
Criticisms of malpractice in emerging industries have bubbled over into mainstream press. Much of this criticism focuses on how the pursuit of profits is innately corrupting.
A recent Guardian article likened Nasdaq listed psychedelics companies with The Sackler family’s Purdue Pharma, which recently made an $8 billion settlement with the US Justice Department for its role in the opioid crisis in the US. The family have become infamous as chronicled in Empire of Pain by Patrick Radden Keefe and Dopesick by Beth Macy.
Purdue, who produced the opioid OxyContin, was found guilty of criminal activities in relation to their marketing of the addictive painkiller. A public health crisis that could be traced in many parts of the country back to one company is, understandably, a crisis of confidence for the whole pharma industry and the regulatory system that governs them.
It is a major jump to liken comparatively small biotechs with bad actors like Purdue just because they are both following traditional pharmaceutical routes to market. Purdue is a company that was driven by greed and motivated to obscure data that reduced their sales.
The early psychedelic drug developers that are building peer-reviewed clinical trial-led businesses are of course focused on protecting and trying to own as much IP as they can. But, until they are shown to be actively pushing unsafe products on unconsenting patients, it is outrageous to draw parallels with Purdue Pharma.
The pursuit of profit does not require the dropping of moral and ethical codes so until there is evidence of such malpractice it isn’t a useful exercise to lump the two together.
If those psychedelics companies disappear with investors’ money the case would be clear cut, but if the breakthrough therapies they promise are not fully possible, the case is far less black and white. Not all scientific ambition can be realised, but it doesn’t mean we shouldn’t try.
These companies will be judged on their transparency, their management, and the information they had when they made promises of greatness. Only time will tell if the psychedelic companies on the Nasdaq today are good or bad actors and I for one believe it is far too early to cast that judgement.
Context is everything
Projections, momentum, and hype are such high context words, and history is written by the victors.
Pinned to a rising-star startup who are delivering on their lofty ambitions these are badges of honour. Associated with a failed company these words take on an altogether different meaning. They become cynical tactics for greedy founders and investors.
Context is important, as the environments in which founders operate can influence their behaviour, to a degree.
As my dear friend Alfredo Pascual points out, companies like Theranos raised huge amounts of capital with low amounts of due diligence, which has major parallels with cannabis companies. He expects the tightening of monetary policy in 2022 will likely temper some of the laxity we’ve seen in the system in recent years.
I am in no way making excuses for fraudulent activity but I am looking to better understand the role of hype (both good and bad) that is so prevalent in emerging markets – and in particular what happens in that grey area between failure and malpractice.
As a part-cynic, part-optimist, this topic really conflicts with me. I often have to hold my tongue when I see a potential bad actor in the cannabis or psychedelics sector, as I know that, just how good companies can become bad, bad companies can become good. The world is a messy place and we need to be pragmatic even when being led by our values.
It is extremely important for those operating in these sectors to note: you may be able to ‘get away’ with losing the money of professional investors in some cases, but the stakes are very different when you are gambling with the health and wealth of the everyday man and woman. These things are not forgotten lightly.
If the ultimate lesson we take from these stories of corporate greed and malpractice is that we need to temper ambition and not invest in highly risky sciences then we’ve missed the point.
There is clearly a line between ambition and fraud – and mismanaged hype can bring a company across that line, while transparency and due process can bring it back to the right side.
More transparency and more risk-taking innovators are what the world needs.