New Report Says Less Than Half of Cannabis Businesses are Profitable
The general belief presently is that once a business kicks off in the cannabis industry, it instantly booms and leads to huge returns. A recent report from Whitney Economics doesn’t readily agree with this belief as it published a survey that less than half of cannabis businesses are profitable. How true are the results of this survey? What does it mean for new startups heading into the cannabis industry? What are the major factors halting the success of these businesses? Read on as we give answers to these questions and more in this article.
The cannabis industry is steadily experiencing huge waves of growth and development across all sectors. This is majorly being spear-headed by the impact of the legalization of the natural herb across different states. Some states are opening markets for recreational and medical use of the herb while some are open only for medical use. The impact of these open markets created space and avenues for more cannabis businesses and more job opportunities in the cannabis sector. This has seen nearly half a million Americans working under these businesses in the cannabis industry.
A Closer Look into the Results of the Report
The prospects and the burgeoning sales of cannabis products across the country would make one believe that all cannabis businesses are soaring in profits. The new report from Whitney Economics after a survey of about 400 cannabis business owners in 20 legal states unfortunately says otherwise. The results of the report indicate that only 42% of the business owners in the survey were profitable. 20% of the respondents indicated that they were breaking even in the business. This leaves 38% of the respondents still operating their businesses at somewhat of a loss as opposed to the general expectation of a profit by all of the companies in the new marijuana industry space.
The report also examines the possibility of differences between the success rates of mature and emerging markets. On this end, the report found little or no difference as trends of results in both markets seemed similar. When the results of the report are divided across the gender of the heads of these businesses, another surprising trend was observed. 62.5% of female respondents stated that their businesses were not returning a profit. At the other end of the divide, only 54.4% of male respondents fell into the category of those whose businesses were not yielding profits. It might be too early to read much meaning into this difference as businesses owned by women were shown to be more likely to break even.
The results of the report also identified a surprising character in terms of the location of businesses. The survey showed that businesses in California are struggling financially with only 26.1% having profits after all their expenses. This shows that competition for businesses in the Golden State is not a reflection of profits on the turn of the businesses. These statistics give the perception that the proposed growth of the cannabis industry is not evenly distributed to mean profits for the cannabis business. It is even more alarming when one considers the fact that projections of the cannabis market are set to hit $25 billion by 2025.
The survey also asked the respondents what they felt about the progress of the industry so far and where it was heading to. Results from these queries showed that 39.4% of operators in the industry believed the industry is headed in the right direction. A strong majority of 41.5% of the respondents disagreed that the industry is presently headed in the right direction. The more optimistic respondents from these queries were found to be those in the emerging markets compared to the matured ones. A further breakdown of the results shows that the cultivators are the least optimistic in terms of sectors looking into the direction the industry is heading to.
Common Factors Halting the Growth of Cannabis Businesses
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Banking
Many cannabis businesses are restricted in terms of growth due to limited available banking services. 70.9% of respondents from the survey identified investment capital and lack of needed banking services as a major limitation to growth. Banks offer little or no support to such businesses which makes competing with illicit dealers a herculean task. The major reason for the limited banking services is the stance of the federal government regarding cannabis as a schedule 1 drug. Despite states having legal markets for recreational and medical use, the herb and economic activities around it are still considered illegal.
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Market volatility
A stable and balanced market allows businesses to make informed decisions and plans towards making a profit. The cannabis industry is still very much in its emerging phase which means there are a number of structures that are still not in place to ensure the stability of the market. This has resulted in a volatile market for the cannabis industry that readily alternates and makes stability hard for cannabis businesses.
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Taxation
The presence of open markets in a number of states in the U.S doesn’t come without a price for the cannabis businesses involved. State taxes are usually very hIgh for many small cannabis businesses and make the task of making profit harder. This makes States' taxation one of the major issues affecting cannabis businesses.
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Competition from big businesses
The presence of more established businesses also counts as one of the major limitations to the growth of cannabis businesses. Though this is a problem that faces all business sectors big pharma and other big businesses easily have a huge edge over new cannabis businesses. This makes it hard for them to flourish and make profits.
Bottom line
The results of the report can easily come as a shock at first but on closer look, it is easy to see why such a result is seen. All that is required is for state and federal authorities to help in putting the right structures in place to ensure that there is adequate room for businesses to thrive. With the right policy and structures, the cannabis industry can be a burgeoning home for most business owners.
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