Recognizing the Signs of Failure in Your Cannabis Business Inspired by Jim Collins' How the Mighty Fall

Maintaining operational stability is crucial for sustained cannabis business growth and market dominance. In his influential book "How the Mighty Fall," Jim Collins examines how even the most successful companies can enter a cycle of decline if warning signs are ignored. Collins outlines five distinct stages of decline – each representing a critical phase where leadership decisions can either reverse the downward trajectory or accelerate it. For cannabis businesses, understanding these stages can mean the difference between remaining a market leader or falling into irrelevance.

However, many cannabis businesses fall into decline without recognizing the warning signs. Jim Collins' "How the Mighty Fall" outlines five distinct stages of business decline – each characterized by specific warning signs and strategic corrections. This framework offers invaluable insights for cannabis operators of ALL SIZES aiming to detect early indicators of failure and implement corrective actions before it’s too late.

Stage 1: Success Born of Hubris

Success in the cannabis industry can be intoxicating, especially for companies that quickly establish a strong market presence. However, this initial success can also foster a false sense of invincibility. The leaders may take credit for success that was actually due to external forces. A dispensary that dominates its local market may decide to open additional locations without considering the operational complexities of multi-location management. Similarly, a cultivation facility that rapidly expands its product line may overlook quality control, leading to inconsistent product quality and consumer dissatisfaction. The danger here is that leaders become blinded by past achievements, failing to recognize shifting market dynamics and emerging risks.

In the cannabis sector, initial success can breed complacency. Leaders may assume that their past strategies will continue to drive growth, neglecting the need for big picture thinking, ongoing innovation and operational discipline. This will eventually result in leadership referring a lot to how things used to be and how to get back to that.

Warning Signs:

• Leadership dismisses feedback or outside perspectives.

• Strategic decisions are driven by ego, not insight.

• Core values become diluted or neglected.

Course Correction:

• Re-anchor the organization in core values and mission.

• Normalize strategic humility – "success is rented, not owned."

• Implement feedback loops from frontline staff to executives.

Stage 2: Undisciplined Pursuit of More

When cannabis businesses experience early success, the temptation to expand aggressively can be strong. However, unchecked growth often leads to operational disarray. Consider a cannabis brand that decides to enter new states without adequately assessing regulatory differences or establishing a robust distribution network. Or a vertically integrated operator that rapidly acquires smaller companies, only to struggle with integrating disparate systems and processes. The danger here is that the pursuit of growth eclipses operational stability, resulting in overextended resources and declining profitability.

Ambition to expand without clear strategic alignment can destabilize cannabis companies. Expansion into unrelated markets or products can stretch resources too thin, eroding focus.

Warning Signs:

• Rapid growth outpaces operational capacity.

• Expansion into non-core markets or unproven product lines.

• Infrastructure readiness is overlooked.

Course Correction:

• Focus on core competencies and strategic priorities.

• Apply disciplined decision-making filters to new initiatives.

• Strengthen internal systems before scaling further.

Stage 3: Denial of Risk and Peril

In this phase, cannabis executives may ignore clear warning signs of operational instability, dismissing them as temporary setbacks rather than indicators of deeper systemic issues. For example, a cannabis manufacturer experiencing declining profit margins may attribute the losses solely to market fluctuations, ignoring inefficiencies in production processes or supply chain bottlenecks. Another common scenario is a dispensary that faces increasing employee turnover but attributes it to external factors rather than internal culture issues. The danger is that leadership rationalizes problems rather than addressing their root causes, allowing minor issues to escalate into full-blown crises.

In this stage, leaders dismiss emerging risks and rationalize early signs of decline. Optimism overshadows reality, preventing necessary course corrections.

Warning Signs:

• Negative trends are ignored or downplayed.

• Key talent turnover is disregarded.

• Margins erode, but external factors are blamed.

Course Correction:

• Normalize transparent, data-driven reporting.

• Conduct structured internal risk audits.

• Empower middle management to escalate concerns.

Stage 4: Grasping for Salvation

At this point, desperation sets in, and cannabis companies may resort to drastic measures in an attempt to regain their footing. This could manifest as a struggling dispensary launching a line of high-end products without market research, hoping to attract a premium customer base. Or a multi-state operator investing heavily in a flashy new branding campaign, despite declining sales and unresolved operational issues. The danger here is that these reactionary moves are often poorly planned, misaligned with core competencies, and devoid of a strategic foundation, further destabilizing the business.

Panic sets in. The company seeks a "silver bullet" solution – a new product, leader, or acquisition – in a desperate attempt to regain stability.

Warning Signs:

• High-profile hires are made without thorough vetting.

• Over-investment in a "next big thing."

• Drastic strategic pivots without data support.

Course Correction:

• Pause reactionary decisions and assess with data.

• Focus on operational health before pursuing innovation.

• Rebuild team trust with transparency and consistency.

Stage 5: Capitulation to Irrelevance or Death

In the final stage, the cannabis company has exhausted all viable options. Operational inefficiencies have eroded profit margins, customer loyalty has waned, and key stakeholders have lost confidence in leadership. A once-thriving cultivation facility may find itself unable to compete with more agile, data-driven competitors, while a multi-state operator may face liquidation or bankruptcy after overleveraging itself in failed expansion efforts. The danger here is that recovery becomes nearly impossible, as the company’s reputation is tarnished, its market share is lost, and its internal culture is irreparably damaged.

At this stage, the company is on the brink of collapse. Options run out, and stakeholders disengage, leading to a loss of talent, reputation, and market position.

Warning Signs:

• Stakeholders lose faith in leadership.

• Culture erodes beyond repair.

• No clear value proposition remains.

Course Correction:

• Intervention must occur earlier to be effective.

• If present, consider responsible restructuring or asset repositioning.

• Preserve relationships for future ventures.

Jim Collins 5 Stages od Decline : Infographic by Cann Strategy

Checklist: Assessing Decline in Your Cannabis Business

It’s not easy for any leader or business owner to take a step back and objectively assess the state of their company. Admitting that things aren’t going well can feel like a personal failure – but it’s actually a powerful first step toward meaningful change. If leaders truly care about their cannabis business and want to turn things around, it’s essential to face reality head-on. This detailed checklist is designed to provide an honest assessment of where a cannabis business stands, based on Jim Collins' framework, and offers targeted action steps for each stage of decline. This tool is designed to provide a comprehensive overview of the key indicators associated with each stage and guide the implementation of corrective actions.

Stage 1: Cannabis Business Success Born of Hubris

• Has leadership dismissed external feedback or industry perspectives?

• Are core values clearly defined and actively practiced by all levels of the organization?

• Are strategic decisions based on past successes rather than current market realities?

• Is there evidence of overconfidence in the company’s market position?

• Are operational issues or emerging risks being minimized or ignored?

Action Steps:

• Revisit the company's mission and core values.

• Establish regular feedback loops from frontline staff to executive leadership.

• Conduct a strategic review of past decisions and assess alignment with current market conditions.

Stage 2: Undisciplined Pursuit of More

• Has the business expanded into unrelated markets or untested product lines?

• Are resources being overextended to chase new opportunities without sufficient infrastructure?

• Is operational capacity being exceeded without proper scaling systems in place?

• Is growth driven by ambition rather than strategic planning?

Action Steps:

• Identify core competencies and refocus efforts on areas of proven success.

• Apply a decision-making filter to all new initiatives based on alignment with strategic priorities.

• Strengthen operational infrastructure before pursuing further growth.

Stage 3: Denial of Risk and Peril

• Are negative trends in revenue, customer satisfaction, or employee retention being overlooked?

• Is leadership dismissing warnings from managers or external advisors?

• Are declining profit margins being attributed solely to external factors?

• Has turnover among key talent increased without actionable response?

Action Steps:

• Implement transparent, data-driven reporting systems.

• Conduct a comprehensive risk assessment across all departments.

• Empower middle management to report emerging issues without fear of reprisal.

Stage 4: Grasping for Salvation

• Has the company recently made reactionary hires without thorough vetting?

• Are drastic strategic pivots being undertaken without data support?

• Is the business over-investing in a “silver bullet” solution rather than addressing core operational issues?

• Is internal morale declining, with employees expressing uncertainty about the company’s direction?

Action Steps:

• Pause all reactionary decisions and conduct a full operational audit.

• Focus on stabilizing core operations and improving cash flow.

• Rebuild team morale through transparent communication and consistent leadership.

Stage 5: Capitulation to Irrelevance or Death

• Have stakeholders expressed a loss of confidence in leadership?

• Has the company lost its market position due to operational missteps or poor strategic decisions?

• Is the organizational culture fractured, with disengaged employees and ineffective leadership?

• Is there a clear, viable plan for recovery, or is the business in survival mode?

Action Steps:

• Assess remaining assets for potential restructuring or sale.

• Engage external consultants to provide objective recommendations for stabilization.

• Focus on preserving key relationships and minimizing reputation damage.

Conclusion: Identifying and Addressing Decline

Jim Collins' "How the Mighty Fall" serves as a critical framework for cannabis business leaders seeking to recognize early signs of decline and implement corrective measures. By identifying which stage their business may be in, leaders can adopt targeted strategies to stabilize operations, regain market confidence, and position for sustainable growth.

Cann Strategy specializes in guiding cannabis operators through these challenging phases – helping them realign core strategies, refocus on operational excellence, and reclaim market relevance before it’s too late.