Why weed companies can't make any money

[orthene]

It’s not easy selling weed.

The legal marijuana business is booming — revenues are projected to hit $32 billion this year, more than double what sales were just three years ago. They’re projected to double again in the next six years, propelled by the launch of big new recreational weed markets in New York, New Jersey and Virginia.

But that hasn’t prevented most weed companies from continuing to hemorrhage red ink nearly a decade after Colorado and Washington became the first states to establish legal markets for anyone at least 21 years old. An analysis by POLITICO of financial filings from two dozen of the largest publicly traded U.S. operators shows that they collectively lost more than $550 million in the first six months of this year on revenues of nearly $4.5 billion.

“It all stems from federal illegality,” said Anita Famili, who heads the cannabis and CBD industry group at Manatt, a law firm and consultancy. “The cost of doing business for weed companies is just much higher than any other business.”

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. 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.

“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, including Florida, New Jersey and Pennsylvania.

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. That’s led to a glut of product and plunging prices in many of the largest state markets like California, Colorado, Michigan and Massachusetts. Those struggles are being compounded by inflation and an illicit marijuana market that remains robust in many states.

“You have more capacity coming into a marketplace with less spending power from the consumer base,” said Charlie Bachtell, CEO of Cresco Labs, one of the country’s largest cannabis companies with more than $800 million in revenues last year. “It’s a lesson in Economics 101 of supply and demand.”

The end result is that weed companies are in a deep financial funk. Capital raises are down more than 60 percent compared to 2021, according to Viridian Capital Advisors, a financial analysis firm that tracks the cannabis industry. The AdvisorShares Pure US Cannabis ETF — a popular gauge of the industry — is down roughly 50 percent since the start of the year, despite a recent uptick, compared to a less than 20 percent dip for the broader S&P 500.

“If you’re too exposed in a market where wholesale pricing pressures is a severe headwind, those companies suffered in the quarter,” said Morgan Paxhia, co-founder of Poseidon Asset Management, which has been investing in cannabis companies since 2014. “There are plenty of companies that will end up going by the wayside.”

Full article link: https://www.politico.com/news/2022/09/04/weed-companies-cant-make-money-00054541

[jones]

It's interesting the way the gov't has suckered these greedy weed people into this. If they weren't so greedy, they might have tread a bit more carefully. In the end the consumer wins & that's good news

My guess is the black marketeers will make a profit, as usual

                                                   

[KratomToke]

 

One Day The Weed will be Federally Legal..


Hoping sooner than later.