Billion dollar cannabis industry in Northern California sees big problems to solve


However, most large companies are losing money at an unsustainable rate. While this strategy may position them to acquire certain assets in the short term, it will not position them for long term success. In my opinion, the best and most efficient small businesses remain in a defensible position. These are the companies you will remember ten or twenty years from now. And a lot of them are owned by people who have been in the industry for 10 or 20 years.

Eli Melrod: What is true is that the current cannabis environment presents significant challenges for operators. The high cost of regulation, the high tax burden, and the current oversupply of cannabis are particularly difficult for small operators to manage. Large, well-capitalized cannabis operators may be in a better position to overcome these challenges.

Julie Mercer-Ingram: What makes success right now is less size than having strong business fundamentals and healthy EBITDA (earnings before interest, taxes, depreciation and amortization), two things Proof has always focused on. the laser.

Many large companies still speak of a “path to profitability”, although we have worked hard from the beginning to be profitable since our second quarter of operation.

Plus, it’s more important than ever to continuously innovate – this year alone Proof has already achieved eleven successful product launches. Partly because we are smaller, we react quickly to changes in the law and in consumer preferences, which is not always true for some of the larger and less agile companies.

Illegal producers continue to operate, so what is the path to success for legal producers?

Candel: Illegal growers are often legal growers who cannot make ends meet due to low prices and high taxes, so part of their harvest ends up on the black market. Brand loyalty is the only thing to keep prices high in the legal market. Vertical integration also contributes to the profitability of legal growers if they succeed.

Flashing: The road to the success of licensed farmers is paved by favorable local and state ordinances. It does not help our small business owners or their communities when regulations create difficult requirements for licenses, permits, taxation, etc.

Illegal farmers are not going to go away, because there will always be a “black” market or an underground market for everything. Small licensed cannabis operations could use the support, resources and benefits given to other traditional businesses.

Hattan: We need to see drastic changes made at the state level and at the local level. The cost of compliance is too high for “legal” businesses to compete with the traditional market.

California and Sonoma County had the opportunity to allow people with existing successful businesses to transition to the regulated market, and they blew it up completely. Overly burdensome regulations, high start-up costs and delays in processing applications forced many incumbents trying to enter the “legal” market to close their doors or re-enter the unregulated market.

Houston: Most unauthorized cannabis flowers are shipped out of state. A regulatory change that would allow interstate commerce would be of great benefit to the licensed industry. The path to success for licensed growers in this environment is to cultivate high quality cannabis efficiently.

It is important for producers to stand out in one way or another, be it through branding, genetics or a unique product or process.

At Prime Cuts Nursery, we are intensely focused on helping small to medium-sized farms and grow operations be successful by delivering unique and high-value genetics.

Melrod: High quality products and consumer education are essential for legal producers to be successful. Not only do legal growers need to produce unique and top-quality flowers, it is essential that they develop strong relationships with distributors and dispensaries who truly value their product and are committed to educating consumers on what makes their products. so special products. Legal producers must avoid joining the race to the bottom which is accelerated by oversupply and significant price compression.

Mercer-Ingram: Licensed cannabis operators need the state and local authorities to reduce taxes and license fees. The cost of cannabis will always be lower in the traditional untaxed market; however, at this stage, the regulated industry cannot compete.

Cannabis taxes in California and Sonoma County are so high that they are bankrupting businesses. Proof pays an effective tax rate of approximately 80% after local, state and federal taxes. If taxes were lower, Proof would be able to scale faster, hire more local talent, and lower costs for consumers.


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