Has the Green Rush stalled?

New report says less than half of cannabis companies are profitable

The general belief right now is that once a business starts in the cannabis industry, it immediately booms and yields huge returns. A recent report by Whitney Economics doesn’t readily agree with this view, as it released a survey that found less than half of cannabis companies are profitable. How true are the results of this survey? What does this mean for new startups entering the cannabis industry? What are the main factors stopping the success of these companies? Read on as we provide answers to these questions and more in this article.

The cannabis industry is constantly experiencing huge waves of growth and development across all sectors. This is mainly driven by the impact of legalizing the natural herb in various states. Some states open markets for recreational and medicinal use of the herb, while others are open only for medicinal use. The impact of these open markets has created space and opportunity for more cannabis companies and more job opportunities in the cannabis sector. This has resulted in nearly half a million Americans working under these companies in the cannabis industry.

A closer look at the report’s findings

The prospects and burgeoning sales of cannabis products across the country makes one think that all cannabis companies are skyrocketing their profits. Unfortunately, the new report from Whitney Economics, after surveying about 400 cannabis entrepreneurs in 20 jurisdictions, says otherwise. The report’s findings show that only 42% of the business owners surveyed were profitable. 20% of respondents said they broke even in business. As a result, 38% of respondents still operate their businesses at some loss, in contrast to the general expectation of a profit by all companies in the emerging marijuana industry.

The report also examines the possibility of differences between the success rates of mature and emerging markets. In this regard, the report found little or no difference as earnings trends appeared to be similar in both markets. When the report’s findings are broken down by gender of the heads of these companies, another surprising trend was observed. 62.5% of the female respondents stated that their company is not making a profit. At the other end of the gap, only 54.4% of male respondents fell into the category of those whose businesses were not making a profit. It may be too early to give much importance to this difference given that women-owned companies have been shown to be more likely to break even.

The report’s findings also identified a surprising character regarding the location of companies. The survey showed that California businesses are struggling financially, with only 26.1% making a profit after all their spending. This shows that competition for businesses in the Golden State does not reflect profits at the turn of business. These stats give the impression that the proposed cannabis industry growth is not evenly distributed to generate profits for the cannabis business. It’s even more alarming when you consider that the cannabis market is expected to reach $25 billion by 2025.

The survey also asked respondents what they think of the industry’s progress to date and where it is headed. The results of these polls showed that 39.4% of operators in the industry felt the industry was moving in the right direction. A strong majority of 41.5% of respondents disagreed that the industry is currently in the right direction. The more optimistic responses to these questions were those in emerging markets versus established ones. Breaking down the results further, producers are the least optimistic about sectors when looking at the direction the industry is going.

Common Factors Stopping Cannabis Company Growth

Many cannabis companies are constrained in terms of growth due to limited banking services. 70.9% of survey participants identified investment capital and the lack of required banking services as the main obstacles to growth. Banks offer little or no support to such companies, making competing with illegal traders a Herculean task. The primary reason for the restricted banking services is the federal government’s stance on cannabis as a Schedule 1 drug. Although states have legal markets for recreational and medicinal purposes, the herb and the economic activities associated with it are still considered illegal.

A stable and balanced market allows companies to make informed decisions and plans to make profits. The cannabis industry is still very much in its nascent stage, which means a number of structures are not yet in place to ensure market stability. This has created a volatile market for the cannabis industry that changes easily, making stability difficult for cannabis companies.

The existence of open markets in a number of US states doesn’t come without a price for the cannabis companies involved. Government taxes are typically very high for many small cannabis businesses, making it difficult to turn a profit. This makes states’ taxation one of the main issues affecting cannabis companies.

The presence of more established companies also ranks as one of the main constraint to the growth of cannabis companies. While this is an issue that all businesses face, big pharma and other large corporations easily have a major advantage over new cannabis companies. This makes it difficult for them to thrive and turn a profit.

bottom line

The report’s findings may come as a bit of a shock at first, but upon closer inspection it’s easy to see why such a result is seen. All that is required is that state and federal government agencies help put the right structures in place to ensure there is enough space for businesses to thrive. With the right policies and structures in place, the cannabis industry can be a thriving home for most business owners.

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