Cannabis Tipping Point
The cannabis business is wild. It is one thing to start a store, a brand, or add new products to grow on the farm, but it is another when everyone has to follow the Government rules and regulations that are evolving daily. There are multiple factors at play.
Back in the early days of 1996, California began issuing medical cannabis dispensary licenses to sell to patients with serious diseases. It did not take that long until anyone could get a medical cannabis license to purchase weed. Few licenses were available, but getting one seemed to be a golden ticket, particularly if you could get them in multiple states. That happened, and many of those brands were only looking to the future when laws would change, and there would be recreational consumers. Many of these brands are now being traded on the Toronto Stock Exchange.
Most of these companies are bleeding cash as they have grown at any cost. Everyone believed that such a nascent industry as cannabis was all about a first-to-market advantage. Many of these publicly traded companies owe substantial tax bills, their products aren’t great, the market is different in every state, and they are vertically integrated, making them large. The market isn’t bearing what they had hoped.
NYState, for one, has held these large companies back, letting the market be filled with new entrepreneurs. I applaud NYS for that.
The valuations of most of these publicly traded cannabis companies are going down in valuations even though Federal legalization is inevitable. Federal legalization will change everything. Banks will open their doors to this industry in a hot second, and so will credit card companies. Research will boom. The opportunity for investment in new brands will happen. The industry will snowball as the 280E tax goes away.
I am not convinced many of the early companies that are now publicly traded will survive. They aren’t agile anymore and will need more cash to survive. Maybe some of them will take the hit and make the painful decisions necessary to survive. I can only equate this to watching the tech industry undergo multiple iterations.
Right now, we are watching the second generation of cannabis take place.