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Why cannabis companies are struggling to make money

Published Oct 7, 2022 09:00 a.m. ET
iStock / Aleksandr_Kravtsov

The cannabis industry experienced a green rush in its early days, as investors and entrepreneurs put it all on the line in hopes of making money. These days all we hear about are the many companies and brands that have already gone under, as well as those currently struggling to keep everyone paid and stay afloat. These are crazy times for people in cannabis, and it’s not always mismanagement or bad ideas that are to blame for this destruction. In fact, more often than not, it’s something else entirely that’s stopping businesses from attempting to make more money.

1. High prices

Have you seen the prices at your local retail store lately? Well, it’s important to know that most of that money goes straight to the producers or, in the case of places like Canada, into the pockets of government-owned providers that have a monopoly on the industry, making it impossible for shop owners to look for more competitive pricing. The terms are harsh, revenue margins are small, and there’s nothing they can do but hope they stay afloat while paying a massive markup on every item they sell.

2. High taxes

Now you might be thinking, no big deal just hike the prices up enough to keep the money coming in, but consumers are really only willing to pay so much for cannabis products, especially when the black market is still alive, well, and for the most part, sporting prices that are in line with what retailers pay before they ever make a dime. Then you have to consider the taxes implemented by governments which can range anywhere from 5% all the way up to a whopping 20% even on medicinal products.

3. Insane licensing fees

As you can see it’s already sounding really difficult to make more money, but the financial barriers don’t end there, because before a store, producer, or processor can ever sell a single product, it must obtain a license that costs an average of 5 to 10 times more than other comparable businesses. This is a big problem, especially for brand new startups that can’t get access to sufficient financial assistance to make it.

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4. Cash only

In America, the cannabis industry struggles, even more, to make money due to the fact that the plant is not yet legal at the federal level, forcing most plant-touching businesses to work with only cash-based systems instead of credit or debit. Customers are limited to spending the cash they have on them which isn’t a lot these days, and since they must hold onto physical money, they must also spend money paying employees to make frequent deposits at a bank.

5. Zero access to financial help

Generally, a solid business idea can get a good foothold in the market with help from banks and other lenders who put up enough to expand once it’s proven money
will be made. In many cases, expansion is absolutely necessary to get a company out of the red in a reasonable amount of time, and to invest in the best technologies to make the process of growing, harvesting, packaging, and selling easier and more affordable. Without this step up, many cannabis businesses drown before they ever get the chance to get off the ground.

It’s so much harder than it should be to make money in cannabis.

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