WASHINGTON–Even as some credit unions have worked to expand services to cannabis-related businesses, and one cannabis business services CUSO went public for $185 million, most of those same cannabis companies are not making money themselves, according to a new report.
The reasons: high taxes, siloed state markets and lack of access to capital, Politico reported in its new analysis.
“Arguably the biggest barrier to making money is the sky-high taxes weed companies pay because they’re treated like illegal narcotics traffickers under the federal tax code,” Politico reported. “The goods also cannot cross state lines, and that lack of interstate commerce means companies must build separate farms, factories and stores in each state where they do business and navigate a rapidly evolving patchwork of state regulations. Finally, raising capital is extremely expensive due to a dearth of financing options, an issue both Republicans and Democrats in Congress recognize but have yet to address.”
But that isn’t to suggest the market it totally harsh, according to one person.
“If you’re able to generate cash flow with all of these headwinds, when these headwinds start to be removed it’s going to be an incredibly, incredibly good business model said Jen Drake, co-chief operating officer of Ayr Wellness, which has retail and cultivation operations in eight states, told Politico.
Politico said there has been another factor “exacerbating the current financial malaise.” Companies spent heavily last year to expand capacity due to “misguided optimism about the prospects for loosening federal marijuana restrictions after Democrats won control of Congress and the White House”
Plunging Prices
That’s led to a glut of product and plunging prices in many of the largest state markets like California, Colorado, Michigan and Massachusetts, market factors compounded by inflation and an illicit marijuana market that remains robust in many states, Politico said in its analysis.
“The end result is that weed companies are in a deep financial funk. Capital raises are down more than 60% compared to 2021, according to Viridian Capital Advisors, a financial analysis firm that tracks the cannabis industry,” Politico reported. “The AdvisorShares Pure US Cannabis ETF — a popular gauge of the industry — is down roughly 50% since the start of the year, despite a recent uptick, compared to a less than 20% dip for the broader S&P 500.”
The Long Game
Nevertheless, despite the current financial woes besetting the cannabis industry, most close market watchers remain giddily optimistic about the future, according to Politico, because more and more states continue to embrace legal sales, with five states potentially holding referendums in November on whether to legalize marijuana use for anyone 21 or older.
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