Hey cannabis companies, where are you going?

Recently we have seen several high profile cannabis companies leave California, the proverbial epicenter of the industry, and the question is Why? Wana has exited, and both Curaleaf and Trulieve are closing retail locations.  Binske reported that sales were down 27% and estimated their cost to the consumer is almost 40% higher than the illegal market. California is unique because we have many established brands here already that new cannabis companies have a hard time penetrating the market. Combined with regulatory requirements, taxes and slotting fees to get the best placement on the shelf, makes the profit margins so slim investors and business owners are opting to pursue markets with fewer barriers to entry. Doing business in California for a cannabis company is more like doing business in multiple states, as municipal, county and State taxes and fees make it nearly impossible to create a viable business enterprise.

In my expert opinion there are several reasons why some cannabis companies are leaving California:

1. High taxes: California has some of the highest taxes on cannabis in the country, which can make it difficult for businesses to turn a profit.
2. Strict regulations: California has a complex and ever-changing regulatory environment for cannabis businesses, which can be difficult for companies to navigate and comply with.
3. Black market competition: Despite legalization, the black market for cannabis remains a significant problem in California, providing stiff competition for legal businesses.
4. High cost of doing business: The cost of doing business in California, including rent, labor, and compliance costs, can be high, making it difficult for cannabis companies to compete.
5. Limited access to banking: Many banks and financial institutions are still hesitant to work with cannabis companies due to federal laws, making it difficult for them to access banking services, credit and loans.
6. State’s oversupply: California’s cannabis market is also dealing with an oversupply of cannabis products, putting pressure on legal cannabis businesses to lower prices to compete with the black market.
7. Other states with more favorable cannabis laws: Some companies are choosing to relocate to other states, such as Colorado, Oregon, and Michigan, where cannabis laws are more favorable and the market is less saturated.

All of these factors combined can make it difficult for cannabis businesses to succeed in California, and some companies may find it more advantageous to relocate to other states where the environment is more favorable. However, it’s worth noting that California is still a large market with a lot of potential, and some companies may still find success there. As the industry matures, cannabis companies will be faced with the same question that all business owners must address-do we remain competitive by finding operational efficiencies, or by shocking the industry through innovation? Either way, politicians need to listen to their constituents and find more effective ways of supporting a huge opportunity for economic growth in the cannabis industry.

 Michael Larkins, Managing Partner at High Bluff Group