Saturday, October 1, 2022

Why Are So Many Cannabis Businesses Losing Money Hand Over Fist?

Despite all the hardships that come with being in the cannabis business, it hasn’t stopped many from starting their own with the hopes that one day soon, cannabis will finally be federally legal.

This article originally appeared on Cannabis.net and has been reposted with permission.

According to New Frontier Data, the United States cannabis industry is poised to be worth a staggering $30 billion each year by 2025.

Cannabis legalization continues to spread across new states, while members of Congress continue to push for reform. Federal legalization is still being debated, but once it finally breaks through, the cannabis industry can reach even higher heights unlike ever before. In addition, data from Vangst shows that the legal cannabis industry employs over 420,000 people as of January 2022. They add that 280 new jobs a day, on average, were added in 2021.

cannabis sales
Photo by Cappi Thompson/Getty Images

With these statistics, why is it that many cannabis businesses struggle to see profits?

recent survey conducted by the National Cannabis Industry Association polled 396 cannabis business operators from 20 states, with a goal to “establish a baseline of data, and identify the successes and the challenges that operators in the industry are facing.” They used questions to uncover regulatory hurdles, policies, industry sentiments, successes, and demographics.

The results revealed that only 42% are enjoying profits, but it was also disappointing that non-white and female respondents said that their businesses were less successful compared to those of while male respondents.

Additionally, just 37% of operators aren’t seeing profits, reports the North Bay Business Journal (NBBJ). They also found that in California, operators had the least success in their business with just 26% of them saying that their businesses were profitable, while more than half said that they weren’t. Then there’s 20% of operators around the country who feel like they are only breaking even.

“I think we’re in the business where it’s the toughest and the profit is the hardest to get,” said North Bay cannabis grower, Mike Benziger, of Glentucky Farms. “When we became an industry driven on price rather than quality, that’s when it became tough.”

Biggest Hurdles For Cannabis Business Operators

According to the feedback, the biggest issues faced by cannabis operators are the lack of banking access, federal and state taxes, as well as market volatility. Seventy-two percent of operators said that banking access issues as well as other financial services was a major challenge for them.

RELATED: Is the Cannabis Industry Inflation-Proof?

Meanwhile, smaller business owners feel that there is strong competition from the black market while the threat of big businesses looming are also seen as a major challenge. However, no matter what size the business, taxation affects them all. The absence of a standard tax policy on the industry is bleeding many operators dry.

Successes

The sentiment from the operators is that the concerns are far too heavy for them to feel the successes. Despite that, business owners say that the previous year still brought on many achievements, highlighting the added opportunities available for minorities and women as well as a growing customer base.

marijuana money
Photo by IURII BUKHTA/Getty Images

The Painful Truth About Cannabis Businesses

When you first hear the statistics mentioned in the beginning of the article, it’s juicy enough to get anyone interested in putting up their own cannabis business. After all, there’s enough for everyone who wants to get a slice of the green pie, right?

Well, the hard truth is that while cannabis businesses surely can bring in the dough, it won’t be easy. Cannabis products are notoriously expensive to do, as well as maintain, no matter what part of the process you’re in: growing, processing, producing, or selling products. It will easily require hundreds of thousands of dollars, to as much as millions of dollars just to pay for the initial licenses, equipment, security, compliance fees, and property to name a few.

RELATED: How The Cannabis Industry Can Solve The Schedule-I Drug Research Barrier Problem

Not to mention taxes. In states where cannabis is legal, cannabis products have high taxes. For example, in Washington, cannabis products are subject to 37% excise taxes. And on top of that, since the marijuana industry is still illegal in the eyes of the federal government, you won’t be able to apply for any tax breaks or tax write-offs.

And because it’s still federally illegal, it’s also challenging and near impossible to get a loan from the bank. If you can handle not having the support of financial institutions, and have a lot of capital on your own, then you can perhaps make it work.

Any cannabis business owner, big or small, can also tell you that it’s near impossible to open a bank account. You’d have to think about where you can keep your money, which has also become a huge security issue for cannabis businesses. You can’t just hide it all under your bed. Then how are you going to ensure that it’s not going to get stolen, monitor your income and expenses, and ensure your suppliers are paid?

RELATED: Are High State Marijuana Taxes Really The Cause Of The Tenacious Black Market?

It’s a tough world for the finances of any cannabis business owner, that’s for sure.

The cash issue brings about security problems too, which is why marijuana businesses are prone to high theft and robbery rates. Operating solely on cash means that these specific businesses are a big target among thieves.

Conclusion

At the end of the day, no matter how tough it is in the industry — you could have lots of capital, an excellent business plan, and consumers that can’t wait to get their hands on your product — you still have to comply with the current rules. And despite all the hardships that come with being in the cannabis business, it hasn’t stopped many from starting their own with the hopes that one day soon, cannabis will finally be legal in the federal government.

This article originally appeared on Cannabis.net and has been reposted with permission.

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