Why are so many cannabis companies literally losing money?

This article originally appeared on Cannabis.net and has been republished 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 into new states as 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 than ever before. Additionally, data from Vangst shows that the legal cannabis industry employed over 420,000 people as of January 2022. They add that in 2021, an average of 280 new jobs will be added per day.

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Given these statistics, why are many cannabis companies struggling to turn a profit?

A recent survey conducted by the National Cannabis Industry Association surveyed 396 cannabis entrepreneurs from 20 states with the goal of “generating an evidence base and identifying the successes and challenges faced by operators in the industry.” They used questions to uncover regulatory hurdles, policies, industry sentiment, achievements, and demographics.

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

Additionally, only 37% of operators see no profits, reports the North Bay Business Journal (NBBJ). They also found that operators in California had the least success in their business, with just 26% of them saying their businesses were profitable while more than half said they weren’t. Then there’s 20% of operators across the country who feel like they’re just breaking even.

“I think we’re in a business where it’s the hardest and the hardest to make a profit,” said North Bay cannabis breeder Mike Benziger of Glentucky Farms. “As we became an industry that was more price oriented than quality oriented, it got difficult.”

Biggest hurdles for cannabis entrepreneurs

According to the feedback, the biggest issues cannabis operators face are lack of access to banks, federal and state taxes, and market volatility. 72% of operators said problems with accessing banking and other financial services were a major challenge for them.

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Meanwhile, smaller business owners feel there is stiff competition from the black market, while the threat from large corporations is also seen as a major challenge. Regardless of the size of the company, however, taxation affects everyone. The lack of a unified tax policy for the industry is bleeding many operators dry.

successes

The feeling of the operators is that the concerns are far too great to feel the gains. Despite this, business owners say the past year has seen many more achievements, highlighting additional opportunities for minorities and women, as well as a growing customer base.

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The Painful Truth About Cannabis Companies

When you first hear the stats mentioned at the beginning of the article, they’re juicy enough to get anyone interested in starting their own cannabis business. After all, there’s enough for everyone who wants a piece of the green pie, right?

Well, the hard truth is that while cannabis companies can certainly make money, it won’t be easy. Cannabis products are notoriously expensive to produce and maintain, no matter what part of the process you are in: growing, processing, manufacturing, or selling products. It will easily take hundreds of thousands of dollars to millions of dollars just to pay for the initial licenses, equipment, security, compliance fees, and property to name a few.

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Not to mention taxes. In states where cannabis is legal, cannabis products are heavily taxed. In Washington, for example, cannabis products are subject to a 37% excise tax. And on top of that, since the marijuana industry is still illegal in the eyes of the federal government, you can’t claim tax breaks or tax write-offs.

And because it’s still illegal nationwide, getting a loan from the bank is also difficult, and nearly impossible. If you can manage without the support of financial institutions and have plenty of capital of your own, you might be able to make it work.

Any cannabis business owner, big or small, can also tell you that opening a bank account is nearly impossible. You would have to think about where to store your money, which has also become a major security concern for cannabis companies. You can’t just hide everything under your bed. Then how do you make sure it isn’t being stolen, monitor your income and expenses, and make sure your suppliers are getting paid?

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It’s a tough world for any cannabis entrepreneur’s finances, that’s for sure.

Cash issuance also brings security issues, leaving marijuana businesses vulnerable to high theft and robbery rates. Operating exclusively on cash means these particular businesses are a major target for thieves.

Conclusion

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

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