27% of US Cannabis Operators Achieve Profitability

New Research Shows Only 27.3% of US Cannabis Businesses Are Profitable

As the cannabis industry braces for possible changes, new research reveals a stark reality: only 27.3% of U.S. cannabis businesses are turning a profit. This critical finding was shared by Beau Whitney, founder and chief economist at Whitney Economics, in an exclusive interview with Benzinga. Whitney, an upcoming speaker at the Benzinga Cannabis Capital Conference, provided a candid look at the financial hurdles facing the cannabis market.

Predicting Cannabis Investment Needs

Whitney Economics has developed models to accurately predict cannabis demand and the necessary licenses to support this growth. “Our report aims to forecast how much investment will be required to sustain the industry’s expansion moving forward,” said Whitney. “This type of prediction has never been done before, giving investors a clearer picture of the opportunities ahead.”

These models offer crucial data for investors, banks, and policymakers, providing a glimpse into the future financial landscape of the cannabis market. The projections are expected to influence federal policy, particularly regarding the SAFE Banking Act, which aims to improve banking access for cannabis businesses.

Demand for Capital Across Cannabis Segments

Whitney highlighted the three main areas of the cannabis industry where capital demand is highest: retail, processing, and cultivation. “Retail is seeing the largest growth because consumers need access, and expanding retail outlets increases market accessibility,” Whitney explained. He noted that greater access to legal cannabis helps reduce illicit market activities, benefiting both regulators and legitimate operators.

Whitney’s report emphasizes that retail expansion is crucial for public policy objectives, such as reducing illegal cannabis sales by providing consumers with more legal options.

Profitability Challenges in the Cannabis Industry

A striking revelation from Whitney’s research is the profitability struggle faced by many cannabis operators. “Only 27.3% of cannabis businesses in the United States are profitable,” Whitney stated. This figure, although an improvement from last year’s 24.5%, still lags significantly behind the national average of 65.3% for all small businesses.

“Cannabis operators are trending well below the national average, indicating substantial challenges in achieving profitability,” Whitney added. He attributed this low profitability to several factors, including high tax burdens and limited access to banking services.

“Reform, even with rescheduling, will provide tax relief and free up cash flow, helping businesses manage debt better and pay delinquent taxes,” he noted. Improved banking access would also lower the cost of capital, making the industry more attractive to investors.

Preparing for the Future

Whitney’s findings emphasize the importance of strategic planning and data-driven decisions for cannabis businesses seeking investment. “To secure funding, cannabis proposals need solid data, a compelling value proposition, and a strong management team,” Whitney advised.

He also pointed out the trend away from vertical integration, with large brands now contracting suppliers rather than investing in self-contained operations. This shift indicates a more flexible and potentially more profitable approach to managing the supply chain in the cannabis industry.

The cannabis industry faces significant challenges, with profitability remaining elusive for the majority of businesses. However, strategic planning, data-driven decisions, and potential reforms could pave the way for a more sustainable and profitable future. Whitney’s research underscores the need for careful investment and robust business strategies to navigate the complex landscape of the cannabis market.

As the industry continues to evolve, stakeholders must stay informed and adaptable, leveraging insights like those from Whitney Economics to drive growth and achieve long-term success.