Why is the cannabis industry failing?

January 16, 2023by Staff Writer0

Weedmaps. Dutchie. Blaze. Flowhub. Trulieve. These are just a handful of cannabis industry companies that have laid off workers due to the changing business climate. Only a few short years ago, these companies could do no wrong. Happy employees post on socials about “what an honor it is to work for XYZ cannabis company,” only to have their hopes dashed with layoff notices.

Was it shortsighted business leaders or employees in these companies who felt that the cannabis industry was immune to business forces affecting everyone else? Was it turning a blind eye to unbridled greed that, like in many sectors, cannabis companies are experiencing their comeuppance and now have to abide by sound business practices to succeed?

Unlike other verticals, cannabis is federally illegal and faces unique challenges. Reasons for failing are many:

  1. Taking fast, easy, cheap VC money due to low-interest rates. It didn’t occur to these leaders the same thing happened in the dot com bust of the early 2000s. VC companies want an ROI fast. Cannabis companies’ stalwarts relied on a growth-at-all-cost mindset, forsaking profitability. Now, forced to conserve cash as sales dwindle, they resort to laying off once loyal employees to protect their bottom and serve their bosses, the VC firms, to survive and become profitable in the long run. 
  2. Over-regulation and taxation. Greedy states put significant burdens on cannabis companies that put up roadblocks to profitability. Also, so-called social equity programs are more “feel-good” initiatives that create confusion and heartache for many. In some instances, these programs are also challenged on constitutional grounds, hurting more businesses than they are helping.
  3. Lack of access to traditional banking. The Safe Banking Act failed to pass in the recent midterms, dashing high hopes for many. A lack of viable banking options puts the operator without deep pockets at a disadvantage in growing their company. If you are lucky to find cannabis banking, it’ll be much more expensive than for federally legal businesses.
  4. Lack of standardization across the states. There is no singular regulatory framework, leaving each state to make up its rules and regulations – affecting interstate growth. Quality can also be an issue with the different safety standards. 
  5. The illicit market. As inflation and layoffs in specific industries (cannabis) ravage the country, many cannabis customers are looking for lower-cost, viable alternatives in the illegal markets.
  6. Highly competitive. While all industries have competition, cannabis is unique. As more states legalize, new players flood the market, pushing prices and profits down.
  7. Tanking prices. Akerna, once valued at over $500 per share, now (depending on when you read this) trades below $1 per share. Also, there’s been a precipitous drop in wholesale pricing of over 50%, putting a death squeeze on growers’ profits.
  8. Social stigma. While more people are more accepting of cannabis, it still holds a negative connotation for many, especially those who grew up with the War on Drugs. Also, these negative stereotypes for those cannabis companies (if they can secure it) get funding from would-be investors.
  9. Old school vs. new school. There’s a war between legacy and the legal markets regarding running a viable business, especially when implementing new technologies like AI.
  10. Failing to run cannabis companies like regular businesses. In essence, cannabis is just like retail, albeit with more rules and regulations.

The cannabis industry is still relatively new. While there are unique challenges compared to other industries, the opportunity is immense. Making sound business adjustments, like investing in AI-driven tools to improve profitability, could be the difference between the life and death of your cannabis business.

If you want to know how AI can help drive top and bottom-line growth for your cannabis company, schedule a discovery call here.

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