Business in any industry will ebb and flow depending on economic factors, supply and demand, and environmental issues. For the budding cannabis industry, most cultivators and retailers have not been operating long enough to feel the full impact of the bust and boom cycle. However, that may change as many in the industry point to financial setbacks caused by recession fears, product oversupply, and continuing battles with the federal government over access to financial services.
Is the marijuana industry experiencing one of its first significant busts? Can businesses weather the storm long enough to see another potential cannabis “gold rush” as more states move to legalize the substance? The cannabis industry may be experiencing its first major economic viability test.
The Cannabis Industry Bust
It is no secret that cannabis businesses, especially in specific sections of the country, are struggling right now. Whether it’s called a slow-down or a bust, the fact remains that many retailers and cultivators are struggling financially. California is one hub of the cannabis bust. Major marijuana cultivators, distributors, and retailers are falling behind, unable to pay their bills, and looking for ways to make ends meet.
One licensed California distribution company reports falling behind on a key loan, putting its operations at risk. Herbl once handled $700 million worth of cannabis-product sales in California. Its story highlights one of the most prominent failures of the cannabis industry. There are also fears that the company may owe potentially tens of millions of dollars in unpaid invoices and may owe the state of California millions in unpaid taxes.
However, Herbl is not the only cannabis company facing a financial crisis. Shares of Canadian cannabis company Canopy Growth fell 6.5 percent last week. The fall in stock price comes on the heels of a more comprehensive quarterly loss over the previous year. Canopy reported an overall net loss of $648 million Canadian, or $490.69 million in U.S. money, for the fourth quarter ending March 31st.
Cannabis sales in Washington state slowed for the first time since the state began selling recreational cannabis in 2014, igniting fears of a widespread cannabis bust. Retail marijuana sales dived eight percent from 2021 to 2022. Colorado is also experiencing an end to the cannabis boom times. Cannabis companies in the state are seeing the worst downturn the market has ever experienced. Sales figures continue the downward spiral, and the industry is calling for the state to stop issuing new cultivation business licenses to attempt to staunch the financial hemorrhaging.
The story is the same in other parts of the West. California, Colorado, Oregon, Washington, and part of Canada are seeing the most significant impact of the marijuana bust, throwing into question the viability of the industry as a whole.
What Burst the Cannabis Bubble?
Why are so many states experiencing a cannabis bust? Numerous factors are playing into the downturn of the recreational cannabis market. Many states feeling the adverse effects of the marijuana bust first experienced unprecedented growth and prosperity during the COVID-19 pandemic. Bored and stuck at home, people flocked to dispensaries with their disposable income. Fast-forward to today, and the growth seen during the pandemic is waning.
Another problem the industry faces is the growing fear of a recession. Post-pandemic, supply chain issues, and other scarcity factors made the price of consumer goods soar. Now, economic factors and high inflation are fast outpacing the earning capacity of most average Americans. Less disposable income in the pockets of Americans means less spending on discretionary items like recreational cannabis. Instead, people must conserve and allocate resources to afford basic necessities that are ever more expensive.
Another problem plaguing the cannabis market comes down to Economics 101: supply and demand. In places like California and Washington, an oversupply of cannabis has driven down the price of flower and other cannabis products. Years of experience in the marijuana industry and extraordinary growing conditions have led to an influx of cannabis within state borders. Dirt-cheap prices may make customers happy but present challenges to businesses attempting to pay the bills and keep their doors open. Since interstate trade of marijuana is impossible due to federal law, cultivators have heaps of products with nowhere to go.
Where There Is a Bust, There Is a Boom
It is not all doom and gloom for the cannabis industry. There are emerging cannabis markets new to recreational legalization that are experiencing the growth once seen by Washington, California, and Colorado. Minnesota, Delaware, Missouri, and Maryland are among the states that have recently legalized recreational marijuana sales within their borders. Other states may also be close to enacting recreational marijuana legislation. Undoubtedly, there is still room for growth in the marijuana industry.
What are the indicators of another potential cannabis boom on the horizon? Research indicates that medicinal and recreational cannabis sales could reach $33.6 billion by the end of 2023. Those figures boom to an estimated $53.5 billion by the end of 2027. Despite recent setbacks in other states, medical and adult cannabis sales grew strongly in 2022. As more states move to expand legalization and emerging states get their footing underneath them, the cannabis market is expected to see continued growth in the U.S.
Every industry experiences the boom-and-bust cycle. As the phrase implies, the boom-and-bust cycle comes and goes depending on economic variables and market conditions. Those that prepare and weather the financial storm can outlast the competition and come out the other side in a better position to take advantage of the next cannabis boom.
Is a bust in the West the end of the cannabis industry? Unlikely. As retailers and cultivators adjust strategies, they may be better positioned to grow their businesses. Potential partnerships between inexperienced cultivators in other states and marijuana industry leaders of the old guard may eventually lead to prosperity for all.