More People Are Using Cannabis But Profits Are Down – What’s Up?

Marijuana’s legalization was supposed to be the dream of not only users – but also all the entrepreneurs who would make a mint from the industry! Early movers did make mini-fortunes, but now you hear about the struggle of companies – what’s going on?

First, more people are becoming comfortable with cannabis use.  The Pew Research Center shared some key facts in a recent study. Nine in ten Americans say it should be legal for medical or recreational use.  Over half of the US and Canadian population have tried weed, making for a robust market.  In fact, more people use marijuana than cigarettes according to a recent Gallop poll.  Long term this looks good as a a study from the University of Michigan, show that more and more young adults living in legal states are regularly consuming marijuana.

So what’s the problem?  Lots of promises have been made and even more bad legislation.  Colorado, the OG of legal states has done it best with their tax structure which keeps prices affordable.  The strategy has even significantly reduced the black market in the state and driven consumers to legal, taxed retail stores.  On the other hand, California’s wild and high structure has rewarded the black market, undercut businesses and placed so many taxes it has been almost inoperable in the largest market. New York’s rollout has been featured for being the best fiasco of a rollout in any state and Canada. Michigan and other states also built in unlimited licenses, causing way too much product even for a healthy customer base.

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Then comes the overpromise.  Indoor grow was going to be everything, producing the very best, most flavorful and just the right potency.  What was overlooked is customers care about cost.  There is a reason Bud Light is the #1 selling beer – decent flavor at a cheap price.  Profits were promised at $3,000 a pound, but losses come when it is $1,000 a pound or less.  Illegal products have flooded into unlicensed stores in NYC severely hurting the tax paying, higher overhead legal retailers.  Federal legalization will also smack the industry when Southern states let outdoor grow come out the closet and produce at a faction of the cost of indoor.

Where is the future?  More and more major mainstream companies like Constellation is taking an interest and guiding successful companies for the future.  There will be the shedding of some companies along the way and some rightsizing.  The best answer for teh customer is federal legalization to make it safe, easy and affordable.

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