Opening a Cannabis Business in 2022

NEWS & PRESS

Opening a Cannabis Business in 2022

June 28, 2022 | Education

Opening a recreational cannabis business in 2016/2017 was a seriously gutsy move. 

You could’ve spent tens of thousands of dollars on two years of rent on a premises waiting for a license that never came, you could’ve had a poor first year yield or one that grew too hot, or your business could’ve been raided by the DEA with a sealed warrant and without warning. 

Between disjointed and constantly changing regulations and the lack of banking system and financing options, only truly intrepid spirits dared to start. 

These risks still exist but there are certainly clearer pathways and access to help. Now, it seems like every influencer has a whitelabel CBD haircare range, and there are too many celebrity weed brands to count. Is this high growth space easier to crack in 2022?

The Law 

Despite the vast majority of Americans being in favor of legalizing cannabis at some level, and the glimmer of hope we were offered when the House passed the MORE Act (the bill that would remove cannabis from the list of banned controlled substances), industry experts estimate that we’re still five to 10 years away from the end of federal prohibition.

However, there is certainly momentum at the state level. All eyes are on Minnesota, Maryland, New Hampshire, and Ohio to legalize recreational use next. [ed. We sadly just had to remove Delaware from this list 😢]

There are also efforts to make the circumstances for legal cannabis businesses easier. Policy minds predict that the SAFE Banking Act, which would allow banks, credit unions, and other financial institutions to offer banking services to legally-operating cannabis businesses, to become law before 2023. 

Also, the newest recreational states offer social equity licenses to benefit communities most hurt by the War on Drugs. 

Competition

The cannabis space is known for its intense competition, as entrepreneurs rushed in to be first to market and become established in this ever-moving industry.

The federal prohibition of cannabis makes it incredibly hard to scale, which means that the market is mostly made up of small brands, with a few exceptions like Curaleaf, Canopy, Green Thumb, Trulieve, and Aurora. 

Richard Batenburg III, chief investment officer of Cliintel Capital Management Group, predicts that 2022 will be the year of consolidation of existing companies and increased competition due to the growing strength of brands and small to medium sized companies cashing out. 

“The market is experiencing arrested development due to crippling tax regulations, a lack of institutional banking and the commoditization of the plant, leaving operators with little to no margin for revenue and further incentivizing the consolidation of the industry.”

Financing 

Despite being in a booming market set to be worth $30 billion next year and $40 billion by 2030, accessing start-up capital is the biggest challenge in opening a cannabis business. According to Cannabis Public Policy Consulting, of the 362 people who reported applying for a cannabis license as a social equity applicant, 45% cited a lack of financial assistance/funding.

Bootstrapping is near-enough impossible, with licenses costing between $35,000 and $120,000 depending on your business-type and state, and upfront staff, material, and premises costs that occur way before money starts rolling in. 

You can raise capital by issuing stock, through private equity, venture capital, and in very limited cases, credit unions. Sadly, bank-backed loans are still out of the question. 

There are about a dozen big US-based investment firms that focus on cannabis. 

By nature, cannabis investors have a high risk appetite, and deep passion for the industry. However, they aren’t investing in good ideas or concepts. They’re looking for people who already have established pathways to cash, and who can prove they can operate in quickly changing industries.  

According to Bloomberg’s ‘The Dose’, cannabis startups in Europe are facing a harder time raising capital amid recession fears and sinking stock markets, but that could ultimately help the industry.

“This period will be really good for clearing out those who were just trying to make a quick buck,” said Alastair Moore, the founder of Hanway Associates, a research firm. “That’s a good thing for the sector.”

Consumer Trends

Cannabis is slowly becoming demystified among adults in the US. Data released last week shows that 39% of all individuals 16 years of age and older in legal US markets used cannabis in the past month. That’s a lot more than previously thought. 

In 2022 and next year, it’s likely that:

  • Public support for federal legalization will continue to grow, and be bolstered by corporations and organizations.
  • Interest in products that are portable, discreet, or aimed at the cannacurious,  like pre-rolls, tinctures, and THC seltzers will increase as an easy entry-point.
  • Social equity cannabis brands will continue to foster attention in the market.
  • We’ll see more in terms of cannabis lounges, events, and marketing activations as more people embrace cannabis as a communal activity.
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