MJBizCon 2022: Cannabis Grows Up
The annual MJBizCon Marijuana Business and Expo, held November 16-18 in Las Vegas, is a staple for all in the industry each year as insiders reflect on the successes and challenges they faced. It also serves as a platform to inform and educate insiders and others to prepare for the year ahead. While we saw growth and optimistic projections post-pandemic, 2022 has been a wakeup call for many.
There was less “hype” and more “real talk” about the challenges businesses were experiencing along with solutions and services that could help take businesses from survival mode to a working, sustainable success.
The industry continues to see growth as more states come online and allow both new medical and recreational marijuana licenses, including Vermont, Montana, New Jersey, New Mexico, Rhode Island, and New York. The sales growth overall had been significant and is estimated to be around $33 billion nationally for 2022. The consumer base continues to grow and become more mainstream, indicating signs of progress. But industry experts note that while the past year had seen growth, it’s important to be aware that not all market growth is healthy growth. Each year, more players have entered the market that impacted demand and saturation.
“We’ve got states that open the floodgates for cultivation licenses… we have competitors who are focused exclusively on top-line growth. And they may not be making any money. They probably are losing money, but it keeps the doors open,” says Nancy Whiteman, CEO of Wana Brands. She further stated this issue trickles down to retailers who will have to sell 30 percent more units to make the same revenue and profits as before. Heavy taxation, 280E, lack of enforcement, capital flow, the Farm Bill Delta-8 loophole, and oversupply are just a few things impacting everyone in the cannabis industry. Experts warn that without some control and balance, the industry will collapse. Last year alone, many businesses had to close their doors.
Acreage Holdings CEO Peter Caldini, who joined Whiteman on an industry CEO panel, acknowledged that any emerging market is going to experience growing pains. He said the environment becomes more competitive but doesn’t have to be a matter of survival, but rather one of preparation and strategic navigation.
“In order to be successful, it really goes back to your business fundamentals. It’s your own operational capabilities and creating differentiation,” says Caldini. He then candidly spoke about Acreage’s own situation regarding assessing footprint and headcount size from an operational standpoint. To remain efficient and competitive, he said, companies will have some tough decisions to make, and will need to have a firm grasp on every aspect of their business.
On the main stage, platinum rapper Berner, who is also the co-founder and CEO of Cookies, shared his insights about how “organic and authentic” is woven in the organization’s fabric from their vibe, business process, branding, and marketing to their deep connection with patient consumers. Berner also shared details about the value in having teams and processes that are trustworthy and proven.
“Don’t be discouraged, because the people that hold on and figure it out are gonna be the ones that walk out,” he said.
The figuring it out part is going to take work and it won’t be an easy process. Even though our industry is still emerging, Perry Salzhauer, Partner at Green Light Law Group, stated that businesses operating in the market need to stay focused on market conditions and know where they stand within it and to utilize best practices across the board.
“The old practice of handshake agreements and loosely worded documents has to stop,” says Salhauzer. “If you do not have robust documentation that is effectively customized and specialized for the cannabis industry, you cannot survive… the knives will come out. You want to make sure everyone is on the same page.”
Mia Cetlin, Partner at Lotus Law Group, also stressed how important it is for businesses to set up the correct tax structure from the beginning to avoid future tax ramifications and burdens. Operation size and complexities need to be considered when deciding which type of entity structure will best support and allow a company to operate successfully.
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Katie Maxon-Landis, who serves as the COO of Indivia Advisors and CPAs LLP, sat on the legal and tax panel with Salzhauer and Cetlin and made it clear that by not working with real, legitimate professionals, businesses are taking a risk.
“We’ve seen it all. Taxes are it. Gone are the days of not behaving like a business. People are building their businesses on not paying their federal taxes. It’s not a hidden secret that 280E is trying to put you out of business,” says Maxon-Landis. She also went on to debunk the myths that there is a way around 280E, legalization will fix everything, and that there are no real barriers when entering the market. “280E impacts you if you are in the cannabis industry. Period. And… its intent is to tax you to death. Its goal is to make sure you don’t succeed.” The panel, along with many speakers throughout the conference, urged people to get involved and meet politicians and regulators and tell them about your business successes and challenges and humanize the industry.
Even if there is federal legalization and cannabis is allowed to flow freely across state lines, Perry pointed out this would not just be an overnight or simple process since national marijuana operators would immediately be faced with conflicting national and state regulations.
Former MJBiz CEO Chris Walsh referenced Canada in his State of the Industry opening remarks about its progress over the years after being nationally legalized. It hasn’t been a process without challenges as that market continues to deal with oversupply and companies struggling to make profits. Most of the profitable corporations today in Canada are government-owned wholesalers. As noted with Canada’s roll out, federal legalization is far from being a silver-bullet solution.
So, how can businesses make the transition? According to the experts, they can start by honing in on establishing strong corporate fundamentals while implementing best practices that ensure solid infrastructure puts them in the best strategic position, operationally and financially. Working with legitimate business professionals who are providing legal, tax, and other areas of needed expertise is imperative to ensure corners are not cut and embrace and evaluate the back-to-basics concept when it comes to evaluating your company’s real purposes and goals. Ensuring you have the right people in place that you know you can trust to get the job done, create a positive company culture, and understand the market your company wants to participate in.
One of the best things about the cannabis industry is that we all come from different places, industries, and walks of life. There are people and resources available to help but it takes work to find them. And, when you do find them, take the time to assess if the fit is right. This industry has had the reputation of hurrying things along only to wait and rush to market, and deal with things later. Moving forward as entrepreneurs and as an industry, we must be mindful of not only the present, but the longevity and sustainability of the health and growth of commerce.
The cannabis industry is full of stories of triumphs and success, but also of adversity and failures, which serve as learning opportunities. As we make the necessary adjustments to become stronger and more strategic, 2023 is the year we anticipate seeing more changes and results towards positive industry growth and stability.
