Only 27% Of US Cannabis Operators Are Profitable
![Only 27% Of US Cannabis Operators Are Profitable](https://dlgqrg63adybs.cloudfront.net/s3fs-public/styles/article_full_lg/s3/2024-07/Only%2027%25%20Of%20US%20Cannabis%20Operators%20Are%20Profitable.jpg?itok=z96YW0ua)
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.
Beau Whitney, founder and chief economist at Whitney Economics and upcoming speaker at the Benzinga Cannabis Capital Conference, shared these critical findings in an exclusive interview with Benzinga, offering a candid look at the financial hurdles facing the cannabis market.
Predicting Cannabis Investment Needs
Whitney Economics 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 provide critical data for investors, banks, and policymakers, offering 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 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.
Whitney 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.