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Just over a quarter of cannabis businesses are actually profitable
Plus, 64% of Floridians support legalization
Friday, July 26, 2024
Happy Friday everybody.
In this one, we break down some sorry numbers about how many cannabis businesses are unprofitable — and why that’s dire for social equity.
Let’s get to it.
-JB & JR
This newsletter is 1164-words or about an 8-minute read.
💡What’s the big deal?
📈 PROFITS?
A little over a quarter of cannabis businesses are actually profitable
Driving the news: If you’re a reader of this newsletter, you likely understand — and have personal experience with — how hard it is to make money in the cannabis industry.
It’s an industry like no other, especially in the US. Many companies still can’t access the financial system due to federal illegality. That tamps down investment and makes the traditional levers of growth capital scarce. Long-held social stigmas against cannabis use still hurt employee recruitment.
And cannabis can’t cross state lines, meaning entire supply chains, from seed to sale, need to be built and recreated in every market to expand. That’s all quite expensive. And it’s even worse, because cannabis companies can’t deduct regular business expenses thanks to an archaic law from the 1970s.
All that is on top of the still persistent competition from the illicit market, declining wholesale prices, and the difficulties in finding investors who are willing to take the risk to back a federally illegal industry but who haven’t yet been burned.
Let us reiterate: An industry like no other.
What happened: A new report from industry research firm Whitney Economics put some numbers to those problems. Only about 27% of US cannabis operators are profitable, according to the firm.
Over 40% of cannabis businesses are breaking even, however. But 32%, as of this year, are losing money.
That’s compared to the over 65% of small businesses in the US that are profitable, according to the US Chamber of Commerce. So the cannabis industry is ways behind.
What they’re saying: “The cannabis industry is under economic distress, primarily due to the confluence of heavy federal taxes, lack of access to financial services and heavy state and federal regulation,” Whitney Economics founder Beau Whitney said.
“Although states have programs dedicated to social equity in cannabis, the fact that most regulators do not track data related to social equity's impact makes it difficult for regulators to know what is working and what is not. State legislatures will need to support and fund regulators to collect this type of data.”
Why it matters: On average, the data shows that 33% of white-operated cannabis businesses are profitable, while only 17.5% of non-white owned businesses are.
That’s a key issue for social equity cannabis programs, which, like New York’s, promised “generational wealth” to prospective minority business owners.
But without the ability to actually get small business loans at fair market rates from banks because of federal illegality — and the proper legal and financial advice to run a profitable business in a challenging, competitive industry — often social equity business owners are forced to take on borderline-usurious loans that hamstring their businesses from the start.
That issue came to a head in New York as many prospective license-holders in the state’s social equity program declined to take on loans from the state’s selected private equity firm after they crunched the numbers and figured they didn’t have a path to profitability.
It’s a huge problem.
Our take: Empowering communities and people harmed by the War on Drugs is one of the key promises of legalization.
It’s the social contract, or the license to do business as we say in business school, that the rest of the industry is based on, in some respects. It’s what many young people vote for when they choose to support legalization.
But without the proper tools for equity-aligned entrepreneurs to actually start profitable businesses, it’s mostly lip service. Data is crucial to evaluate the success of these programs, and to help policymakers tweak regulations to make doing business a little easier in the absence of leadership from Congress.
We hope that Congress will pass common-sense legislation that regulates the industry more effectively. But until then, we don’t expect these sorry numbers to change.
-JB
💬 Quotable
“I know a lot of people disagree with that, primarily because of what happened in Colorado,” Stark County Sheriff Corey Lee, a North Dakota sheriff who supports the state’s proposed ballot initiative to legalize cannabis, told North Dakota Monitor. “I don’t think that’s fair…. When it first made marijuana recreational, of course people flocked there in huge numbers, but you are not going to see that here.”
“Also, it can be written and regulated how, where and when it’s used, so I think we’ve learned a lot from the states that have had it for years now and I think we can make this transition fairly smoothly.”
The full story is worth a read to understand the perspectives of law enforcement officials in North Dakota who are both for — and against — legalization.
FROM THE OUTLAW REPORT*
The first 265 days of D.C. medical cannabis retail license hearings
![](https://media.beehiiv.com/cdn-cgi/image/fit=scale-down,format=auto,onerror=redirect,quality=80/uploads/asset/file/51816ad9-1767-489b-bee9-1115801f04b7/John_A._Wilson_Building_west_side.jpg?t=1721906555)
Driving the news: Almost eight months ago, D.C. opened its doors to new medical cannabis retail applicants. The Outlaw Report analyzed Alcoholic Beverage and Cannabis Administration (ACBA) Board decisions from November 1, 2023 to July 22, 2024 to get a sense of the makeup of the District’s growing cannabis industry.
The details: There are 214 new retail licenses currently in the process of opening. 162 licenses are classified as social equity licenses. 52 are standard applicants who did not qualify as social equity.
This analysis does not include cultivation or manufacturer or past medical retail licenses. There are a little over half a dozen current medical retailers in the city.
Dive deeper: Read and subscribe to our partners at The Outlaw Report.
*Each week, Cultivated will bring you the most important and timely stories from Maryland, D.C., and Virginia in partnership with The Outlaw Report.
🥊 Quick hits
Michigan merges med and rec 🌿
Bipartisan Michigan lawmakers are looking to simplify the state’s cannabis rules, by merging medical and recreational licenses into one. Operators currently need two licenses, though if the new law passes, they’ll only need one. Michigan’s medical cannabis sector is struggling with declining sales. Read more.
Pritzker touts Illinois social equity 👍
Illinois Gov. JB Pritzker, a VP hopeful, touted his state’s progress with helping social equity-linked businesses become profitable. “I’m really hopeful that the cannabis industry will continue to bring opportunity and wealth to communities of color for decades to come,” Priztker said. Read more.
Florida still says yes 🦩
Roughly 64% of Floridians say they support Amendment 3, the ballot measure that would legalize cannabis in the state. That’s despite Gov. Ron DeSantis’ vocal opposition to the measure. The ballot measure needs to clear a 60% threshold to pass — and that 64% is down from 65% earlier this year. Read more.
Departures in NY cannabis ✈️
Four high-ranking executives at New York’s Office of Cannabis Management have resigned in recent days, reports New York Cannabis Insider. The departures include Deputy Director of Licensing Danielle Holmes, Director of Health and Safety Nicole Rosa and First Deputy General Counsel Patricia Piskorski Heer, and General Counsel Linda Baldwin is set to leave once her replacement is found.
🤝 Deals, launches, partnerships
Canadian company Aurora Cannabis received cultivation and research licenses to supply newly-legal Germany’s cannabis market. Earlier this week, Aurora competitor Tilray received a license to cultivate in Germany.
Cannabis financial firm Safe Harbor Financial is partnering with BIPOCann, a Denver-based consulting firm that assists social equity and minority entrepreneurs build their businesses, to offer the full suite of BIPOCann’s services to Safe Harbor’s social equity clients for $600. Read more.
🔬 Science & research
A new study published in the journal Frontiers of Neuroscience found that CBD and THC — the active ingredients in cannabis — spike anxiety around 4 hours. But after the acute effects wear off, the researchers found anxiety wears off after around 24 hours, with the effect more pronounced with only CBD. Read more.
📰 What we’re reading
The political animal: Joe Rossi’s journey through Albany’s cannabis maze | NY Cannabis Insider
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