A diverse swath of cannabis industry insiders at the Benzinga Capital Conference this week in Chicago expressed high-flying optimism heading into 2023, but they also hedged by acknowledging the immense business hurdles that marijuana entrepreneurs still face.
“Hell yes, completely optimistic,” said Curtis Dadian, national sales manager for Michigan-based Pipp Horticulture, when asked if he felt good about the industry landscape.
“Especially as we see states coming online, continents talking about legalization, adult use, those are all markets we’re up to serve, and we see huge growth on the horizon,” Dadian said. “We’re very much ready for another sprint of growth.”
Dadian did note, however, that 2022 had seen a “dip” in sales for many ancillary businesses, as the U.S. marijuana industry overall took some financial hits and contracted around the edges.
“We’ll be flat or a bit under from last year. And when I say ‘we,’ I mean the equipment providers overall. It’s kind of common, whether you’re an LED seller or racking provider, everyone’s a bit flat right now,” Dadian said.
He added that his company’s expectation is that sales and growth will start rebounding in the second quarter of next year, as more markets begin coming online, particularly on the East Coast.
He’s not the only one to report both significant business challenges and a sense of optimism for the future.
“While the capital markets are kind of suffering, especially in cannabis, we also know there’s new interested money in the industry that hasn’t played in this space before, that’s looking for new investment opportunities,” said Gia Moron, the president of New York-based Women Grow, which supports women-owned marijuana companies.
“What we’re seeing here at Benzinga, the women we brought to this conference, they’re killing it,” Moron said. “They’re telling me that the people they’ve met, the CEOs that are coming up to them, saying, ‘Hey, someone else was talking about your brand, I want to learn more. Here’s my personal cell number.’”
But Moron also said there will be a good bit of competition next year – and possibly for years to come – for legal, licensed companies in markets such as New York, where illegal, unlicensed retailers have sprung up all over the state.
“That has been a conversation throughout this conference, the gray market, because they’re not pre-existing operators,” Moron noted.
“We’re going to have consumers who are not as informed, who will go to any dispensary that believe, ‘They’re open, they must be licensed.’ What if they get a bad product? It looks bad on us as an industry. So I’m in full support of really cracking down on those unlicensed operators,” she said.
Another state where unlicensed operators have been a major headache for legal companies is California, where Lindsay Robinson, the executive director of the California Cannabis Industry Association, has been trying to get major reforms through the state legislature for years.
Robinson said she’s “hopeful” looking ahead to 2023, and noted a major victory this past year was the repeal of the California cannabis cultivation tax, which is expected to provide at least some relief to marijuana farmers, if not up and down the supply chain.
“California is incredibly challenging and most days are harder than they should be,” Robinson said, adding, “I’m hoping that folks start to see the light at the end of the tunnel.”
Robinson said she expects more legislative battles in 2023, since some lawmakers will likely try to increase onerous regulations on product packaging and labeling – which was proposed in a bill that her organization already fought back this year.
But she said she’s still optimistic from a national standpoint, because more and more states continue to stand up new cannabis markets, which gives a lot of the country the opportunity to “learn from the mistakes California has made,” Robinson said.
Minority-owned companies are another demographic facing serious headwinds, said Ernest Toney, the founder of Colorado-based BIPOCANN.
“I think (the outlook is) a mixed bag. This past year was really difficult,” he said.
Toney noted there’s been widespread impacts to the marijuana trade from inflation, supply chain problems and contraction within the industry.
“So for organizations like mine – which support some of these small operators and license holders that already have a lot of barriers to entry and growth – there’s a trickle-down effect,” Toney said. “When there’s less money available at the top, that means there’s less money being allocated to support some of those businesses, to get them off the ground. I’ve seen a lot of the folks we serve be in a more challenging situation than they were in even a year ago.”
What that means in practical terms for a lot of smaller businesses, Toney said, is “a lot more competition for the same limited pool of dollars.”
And he’s not sure when that may change, because there’s been limited movement at the federal level to reform the banking system or open up the capital markets to cannabis businesses.
But that may change drastically in the near future, said Mark Passerini, executive vice president at Phoenix-based 4Front Ventures.
“One thing I’m pretty excited about and hopeful for is that banking will pass, if not this session, I think the next session,” Passerini said, referring to the SAFE Banking Act, a bill in Congress that would guarantee safe harbor to any financial institution that works with state-legal marijuana companies.
Though the bill has been stymied to date in Congress, support has been slowly building among both Democrats and Republicans, and Passerini said he thinks a tipping point is quickly approaching.
That gives him hope for 2023 and beyond.
“There’s enough momentum finally, I think, to get that passed, and that’s a first step, since our federal government has literally done nothing,” Passerini said. “It’s a huge deal for every company. Capital will start rolling in and people will gain confidence that this is going in the right direction at the federal level.”
Moron summed up the mood at the conference, when it comes to predicting the future of the cannabis trade.
“It’s a risk overall, but it’s worth the risk,” Moron said.