NEWS & PRESS
The State of the Cannabis Industry
April 20, 2023 | Education
It’s easy to notice the discrepancy between what we read about the cannabis market in business journals or on industry sites, and what people who are working in the cannabis space are saying to one another at your local dispensary, conference, or in online communities.
Forbes tells us that despite the industry taking some hits in 2022, ‘Brightfield Group estimates that the cannabis market will reach over $31.8 billion by the end of this year, growing to $50.7 billion by 2028’. But your passionate local business operators might be telling you that over-production, price compression, high taxes and banking and regulatory hurdles mean that most of the businesses in their community won’t be around in 2028.
What happened in the cannabis industry in 2022?
Like lots of emerging growth sectors, the cannabis market had a rough 2022.
After a demand-strong 2020, subsequent revenue and stocks boost, and new states joining the market, production ramped up and became more efficient. Since then, there’s been an abatement in growth, resulting in price compression.
In Michigan, for example, according to Politico, there’s enough cultivation capacity to supply three times as much weed as the state’s consumers are buying — and that doesn’t include the illicit market.
Investors were also optimistic that progress towards federal legalization and cohesive regulation would be much quicker when the Democrats won both houses of Congress in 2020, but — as we know — it’s been more of a slow plod.
Alan Brochstein of Cannabis Business Times said, ‘In my 10 years of following publicly-traded cannabis stocks, I have never seen prices this low or pessimism this high.’
But money is still being poured into the sector. Where is it going?
Investors are seeing the tough conditions in established markets and deciding not to wrestle with them.
Instead, they’re looking to get in on the ground of emerging markets. These could be geographical, like the Northeast, Florida, and even Europe, or ancillary or technology businesses that aren’t hemmed by the same regulatory guidelines. Others are looking to psilocybin businesses and psychedelics as the new frontier.
Sounds bleak for established businesses…
Not for people on the ground fighting for more favourable conditions. As we came into 2023 with nearly half of states having full legalization, there’s a lot of energy on a state and national level to make things easier on cannabis businesses.
According to Lauren Yoshiko at Broccoli Mag, Colorado and Michigan are reevaluating their social lounge laws, and creating new licenses to support businesses in those cities, after those scenes didn’t make it through lockdown, which would inject a lot of life into the experiential scene there.
And on a more macro level, this week Oregon Representative Earl Blumenauer introduced legislation in the US House of Representatives that would allow cannabis businesses to enjoy the same tax deductions as companies in other industries. Small businesses have been crying out for an end to 280E, the tax code which has them paying two or three times as much as a similar non-cannabis business.
According to Investopedia, several leading Canadian operators, such as Cronos and Tilray, are banking on the US cannabis market. So it’s not time to give up, yet!
Is consumer behaviour changing to keep up?
There was an expectation that legal weed would eviscerate the traditional market, but that hasn’t happened in many areas. Daniel Sumner, Author of the book ‘Can Legal Weed Win?’ says that consumers are put off by high taxes and inconvenient locations and opening hours:
”…particularly the heavy users, have been buying from a guy who knows a guy, and why would they shift?” And particularly, if you said, “Gee, we’re going to legalize this store out there in the mall, in the suburbs, which gives you the opportunity to pay twice as much.” Somebody looks at them and says, “Huh? Tell me again. As the buyer, what’s in it for me?””
This won’t last forever, though. New users tend to be loyal to legal weed because it’s safe, consistent, and tested. And people across the casual to heavy–use spectrum continue to be excited by events, delivery options and, importantly, strong branding and storytelling.
What if I need to fundraise now?
David Kram, a seasoned finance and capital markets executive and founder of Spring Leaf Capital told MG Magazine, ‘This is the most challenging environment I have seen for raising capital.’
But all is not lost, the article lays out the routes that currently exist for cannabis businesses, including equity crowdfunding, which would befit businesses with strong community support.
Like every other hurdle the industry has thrown up so far, it’ll be the people who care deeply about the plant and the community who have the power to turn things around.
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