The growing legal cannabis industry added a few new states to its ranks as the calendar turned to 2023. New York, Rhode Island, and — as of early January — Connecticut all saw their first licensed cannabis businesses begin operations.
Businesses in these newer states routinely look to those in longer-established cannabis states to determine the path ahead. What they are finding lately is that, despite its allure, the cannabis industry is not a sure bet. There are difficulties in managing a cannabis business, and some of the industry trends as the new year gets underway offer some reason to be cautious. Here are some of the potential pitfalls, and how data can help your cannabis organization buck the trends.
Too much supply
Cannabis is a billion-dollar industry, and there’s no question that the cannabis industry’s popularity is here to stay. But that popularity doesn’t mean it’s a slam-dunk for businesses. The cannabis industry in Michigan offers a cautionary tale.
In Michigan, the number of cannabis grow operations serving the state’s recreational market has grown to about six times what it was as recently as 2020. That means the state can produce almost three times as much marijuana as its consumers are buying. The result is that over the past two years, the price of cannabis in the recreational market has dropped about 75 percent.
Other states with established markets have seen their prices go down as well. The increase in supply doesn’t even account for the illegal sellers that allow customers to bypass the licensed dispensaries in different states.
Since cannabis is not legal at the federal level, each of those states has different ways of regulating the industry. And those different state regulations are part of the problem. Because organizations can’t ship goods across state lines, if an organization wants to do business in multiple states, it needs to operate separate farms, stores, or factories in each of its desired locations. Facing less revenue coming in, many organizations are faced with undesirable choices: layoffs, shutting their doors, or being forced to sell.
Mergers and acquisitions wouldn’t be new to the industry, but their value has gone down. Deals that were valued at more than $100 million in the past were in the range of $25 million in 2022, according to Marijuana Business Daily.
How data can help
Some experts say that, if an entrepreneur can stomach a little risk, now might be exactly the right time to get into the cannabis industry. How does someone go about making a decision like that? The right analytics solution could help interpret the numbers.
It could be that the data helps an organization determine just how much supply is too much supply. Or it could help an organization figure out where there are opportunities in the market that had previously gone unnoticed. Those opportunities, such as cannabis-infused beverages, could help redistribute the oversupply, while also setting the organization apart from others in the industry and avoiding some of the troubles those organizations are facing.
The cannabis industry is becoming more and more mainstream. What that means for its future in terms of legal status at the federal level remains to be seen. But in other respects, it means that it faces the same types of issues that any other industry faces. And on the positive side, it is also becoming more commonplace to see the same kinds of tools being used in cannabis that companies in other industries have been taking advantage of for years.
The pandemic created a boom for many cannabis industries. As sales decrease and those businesses come back down to earth, it doesn’t have to mean the end. It just means it might be time to invest in an analytics solution. While other organizations are facing difficult decisions along the lines of how long they can maintain operations before being forced to sell, the organizations with the right analytics in place can advance farther and perform even better than before.
Interested in learning more? Check out our white paper—”Top 5 Cannabis Trends for 2023.”