Only 10% of Cannabis Companies Will Succeed. But How?
Updated: Jul 10, 2022
At Higher Learning LV, we pride ourselves on developing and delivering on-demand science-based education for the cannabis industry with a tone of optimism. We believe that the Four Pillars of cannabis science (cannabinoids, terpenes, flavonoids, and the endocannabinoid system) can improve public health and bolster the economy.
Recently, a cloud of pessimism has shadowed the cannabis industry. This has been on the heels of several legislative defeats and stagnation in the U.S. Congress. Some cannabis stocks and portfolios have lost the majority of their value during the past year, prompting some companies to exit the market, some individuals to shift careers out of cannabis, and all players to reconsider their strategies.
Some long-term investors claim that the current downturn is just part of the inevitably bumpy road to full legalization, including important developments such as interstate commerce and true merchant banking for even small companies.
Fueled by macro-market conditions, rumors of consumer recession, war in Ukraine, and multiple high-profile cryptocurrency collapses, cannabis investors are taking it on the chin. Some stock traders are abandoning the segment or have become extremely pessimistic. Certain long-term investors claim that the current downturn is just part of the inevitably bumpy road to full legalization, including important developments such as interstate commerce and true merchant banking (for even small companies).
90% of Cannabis Companies Will Fail
Among the current climate of despair is a sobering reality: 90 percent of the businesses that are attempting to achieve sustainable and growing profitability will fail. This rule of thumb of both small and large business is in no way exclusive to the cannabis industry.
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Adding even more pressure to cannabis companies attempting to elevate their brands and carve out market share is a range of challenges not faced by other industries, including excessive taxation in most jurisdictions, onerous IRS rules (including IRS 280E, which prevents cannabis companies from enjoying traditional business expense write-offs), advertising restrictions, and a large number of municipalities that have banned cannabis businesses (including in traditionally progressive states like California, Colorado, and Oregon).
In fact, more than a month prior to adult-use cannabis legalization in New Jersey, 70 percent of municipalities and counties had banned cannabis businesses from operating within their borders. While these cities and towns cannot go counter to state law and prevent their citizens from legally possessing and consuming cannabis, they have, collectively, severely buffered the potential positive economic impact of newly legal cannabis in these areas (including potential tax revenue that maintains schools and other infrastructure such as roads and bridges).
The obvious question for cannabis businesses in America becomes: How can they become part of the roughly 10 percent of players that succeed and achieve their exit strategy (IPO, a sale, or a merger)?
The obvious question for today's American cannabis businesses: How can we become part of the roughly 10 percent of players that succeed and achieve their exit strategy (typically IPO, a sale, or a merger)? Who will be left standing after the dust settles?
Some of the answers to this timeless query are obvious. Hyper-competitive emerging markets such as cannabis require all parties to bring their A game. Job applicants who can't define a terpene or are unaware of different cannabis consumption avenues are at a severe disadvantage compared to their more educated colleagues.
Likewise, founders and companies that understand the nuanced biochemistry of cannabis and hemp are best able to leverage the literal pharmacopeia of phytomolecules that it produces—including cannabinoids, terpenes, and flavonoids—to formulate wellness products that deliver true efficacy and value and that appeal to both patients and lifestyle consumers.
As founders, investors, and C suite executives of cannabis companies, we all know that the odds are against our success. Therefore, we must leverage every potential resource to gain an advantage against our competitors and stand out in the market.
As founders, investors, and C suite executives of cannabis companies, we all know that the odds are against our success. Therefore, we must leverage every potential resource to gain an advantage against our competitors.
At Higher Learning LV, we focus on education and training and believe that they best prepare industry professionals and their staff members for the challenges of a shark-filled marketplace that suffers the burden of unusually restrictive regulations and significant opposition at the municipal and federal levels.
Together, we can educate ourselves and the prohibitionists who oppose our efforts to eliminate harmful stigmas that have existed for nearly a century and that currently act as cultural roadblocks to the advancement of legal cannabis and the eventual rescheduling or descheduling of cannabis by the feds.
Through education and training—and the priceless insight they give us—we can best ensure our chances of success.