Like California fire season, \u201cCroptober\u201d\u2014the term for the annual flood of sungrown cannabis entering the market during the fall harvest and the subsequent price shock, as supply on hand far outstrips demand\u2014is now a yearlong phenomenon.\u00a0<\/p>\n
But this year aims to be worse for everyone, as October is due to bring bad tidings for c-suite types and investors in Big Weed. With the third quarter closing Sept. 30 and the next earnings reports for publicly traded companies due beginning Oct. 15, \u201cCroptober\u201d is on track to be \u201cCrashtober,\u201d the autumn of major cannabis companies\u2019 serious problems.<\/p>\n
Anticipating this, the #MSOgang appears to be getting ahead of the trouble. Rather than blame consumers for not buying enough cannabis or themselves for growing too much, a parade of executives and investors\u00a0recently told POLITICO<\/a>\u00a0that the real problem is Congress, and that the real reason they have been gushing cash for years now is lawmakers\u2019 failure to pass any number of significant cannabis reform bills.<\/p>\n While federal tax law and federal prohibition no doubt play a significant role, these are also not new problems for cannabis businesses. But as several observers, entrepreneurs and other cannabis business types contacted for this article said, 2022 feels different.\u00a0<\/p>\n Investors are tired of seeing companies burn their cash. And with more than a half-billion in losses through half of 2022, companies are running out of cash to burn.\u00a0<\/p>\n The American version of Canada\u2019s great bubble bursting,\u00a0predicted by Cannabis Now earlier this summer<\/a>, might be coming sooner than we anticipated.\u00a0<\/p>\n Continuing a trend seen all year long\u2014and in defiance of otherwise across-the-board inflation\u2014 cannabis prices continue to decline almost everywhere the plant is legal for Americans to buy and consume,\u00a0according to recent data compiled by Cowen<\/a>, one of the leading analyst houses tracking the industry. About the only place prices are high(ish) and stable are in states with new adult-use markets with limited competition, such as New Jersey.<\/p>\n Though most every major cannabis company in the United States has a presence in New Jersey as well as New York, where the most recent news is that licensed and regulated retail sales won\u2019t start until 2023, almost a full two years after legalization\u2014and both states have enormous potential measured in the billions of dollars, according to market forecasts\u2014mere promise doesn\u2019t appear to be enough to satisfy the concerns of investors big and small.<\/p>\n Despite revenue from legal cannabis\u00a0projected<\/a>\u00a0to hit $32 billion this year and $72 billion by the end of the decade, big marijuana companies are pleading poverty. So far, the country\u2019s two dozen biggest publicly traded firms lost a combined $550 million on revenues of $4.5 billion, as per POLITICO.\u00a0<\/p>\n Some observers have said that cannabis companies themselves are at least partly to blame\u2014that, maybe, they invested too much in enormous grow facilities that don\u2019t produce enough good cannabis, or at least produced enough mediocre cannabis to depress prices and encourage consumers to shop on the traditional market. But at least publicly, most investor types are blaming lawmakers.<\/p>\n \u201cThe idiots in Washington are causing the problem,\u201d as Matt Hawkins, a private equity veteran and founder of Entourage Effect Capital, which sunk big money into MSOs including Green Thumb Industries, told POLITICO. \u201cThey need to understand that in order for this industry to grow and thrive that has to be passed.\u201d<\/p>\n Even advocates of small weed agreed with the general analysis. Everybody is hurt hard by tax code Section 280, which forbids cannabis businesses from making the normal tax deductions\u2014deductions that, for other firms, mean the difference between profit and a loss, or a tiny margin or a fatter one.\u00a0<\/p>\n \u201cObviously every business\u2019 situation is different, but I would concur that federal policy is about the most significant impediment to positive cash flow, particularly the impact of 280E,\u201d said Aaron Smith, executive director of the National Cannabis Industry Association, which advocates for small businesses. \u201cThe situation is worse for smaller businesses which cannot withstand extended periods of losses.\u201d<\/p>\n That said, Smith\u2019s sympathy is limited for large firms who based revenue projections on assumptions that federal policy would change\u2014and then \u201cdidn\u2019t and don\u2019t invest in the effort to change federal policies either,\u201d he said.<\/p>\n Observers note that cannabis executives appear to be admitting there\u2019s trouble in various ways, sometimes subtly, sometimes very obviously. Companies have already laid off hundreds of workers across the country,\u00a0as MJBizDaily reported last month<\/a>.<\/p>\n At the recent Benzinga Cannabis Capital Conference in Chicago, Curaleaf founder and chairman Boris Jordan turned heads with the prediction that 50% of cannabis sales \u201cfive to ten years out\u201d will be infused beverages, with the other half (presumably) split between flower, edibles and vape cartridges currently dominating the market.<\/p>\n The prediction earned Jordan some headlines in the business press and some mockery on Twitter, but he may also have tipped his hand.\u00a0<\/p>\nJust the Feds, Ma\u2019am<\/strong><\/h4>\n
Dealing With the Flow<\/strong><\/h4>\n