Two dozen of the top plant-touching publicly traded marijuana companies in the United States posted a cumulative financial loss of more than $4 billion in 2022 against nearly $9 billion in revenue, according to analysis of filings by Green Market Report.
The group of companies – a mixture of multistate operators and a few that are only in California – has a wide U.S. footprint, with licensed operations in 28 states, Washington D.C., and Puerto Rico. Many hold substantial market share in East Coast markets and the Midwest, including in Illinois, Michigan, Massachusetts, New York, New Jersey, and Ohio.
Only three of the 24 companies - Green Thumb Industries, MariMed, and Vext Science - ended 2022 in the black, reporting a total of $36.5 million in profit. The other 21 companies posted a cumulative $4.1 billion in losses.
The largest swath of red ink in 2022 was posted by iAnthus, which recorded a net loss of $449 million, followed by Columbia Care with a $421 million net loss, and then Curaleaf with a $376 million net loss.
The smallest annual loss by any of the companies examined by Green Market Report was Medicine Man Technologies, which does business as Schwazze, with an $18 million net loss.
The two dozen companies at the end of 2022 also as a whole had:
- $1.3 billion in cash reserves.
- $12.5 billion in total liabilities.
- $21.6 billion in total assets.
"We're having some big problems," said Alan Brochstein, founder of New Cannabis Ventures and 420 Investor, when asked his opinion on the 2022 results. "We need real buyers to show up."
More than $2 billion of the losses last year were in one-time writedowns by a dozen of the 24 businesses, noted GreenWave Advisors founder Matt Karnes. That includes $340 million in impairment charges by Columbia Care and $225 million by Curaleaf, as just two examples.
But even with those write-downs taken into account, both companies still would have posted multimillion dollar losses, Karnes said. That reality reflects the difficult path to profitability for marijuana businesses.
"It’s a big number, but it’s not surprising, given the headwinds," Karnes said of the $4 billion loss. "Last year, we saw a lot more of these impairment charges, as the public markets started to tumble. All these acquisitions, the valuations had to be reconfigured, readjusted."
Brochstein agreed with Karnes that, in hindsight, the numbers aren't really surprising, particularly because of the artificial industry-wide sales bump created by the COVID-19 pandemic in early 2020. That boom - fueled by government subsidy checks, work from home mandates, and the "essential" designation granted to nearly all marijuana companies - lasted about a year and a half.
The high sales numbers from 2020 and early 2021 - along with the victory of President Joe Biden and the Democratic Party in the 2020 elections - led to widespread industry optimism that federal cannabis reform wasn't too far off, Brochstein said. That in turn caused some companies to overextend themselves with expensive expansion plans, the bills for which basically came due in 2022 and underpinned much of the toll taken on the sector's bottom line.
"Coming into (2022), a lot of people - me included - saw how bad 2021 was, and we were thinking, 'The world’s going to change.' And no, it didn’t," Brochstein said. "When you boom short-term, and nobody knows it’s short-term, and all of a sudden you make up for it, it looks terrible. That was one of the things that happened."
And of course, the general costs associated with operating in a federally illegal industry, which range from immense federal tax bills under 280E to higher insurance and real estate costs, also contributed, Karnes noted. The Internal Revenue Service takes about 12% of cannabis revenues under 280E, Karnes said he once calculated.
All of that helps make profitability elusive for the sector.
"It’s not because these companies suck - I mean, some of them do - but the headwinds are insurmountable," Karnes said. "If you factor all that in, of course you’re going to have a loss. So it’s really a testament to the guys who are making a profit."
Yet another factor has been widespread cannabis price compression and oversupply, Brochstein noted, which has put more pressure on profit margins as the nationwide industry has grown.
"As the companies matured, it made their cost of production go down and their ability to sell go up, and it created pricing pressure. So weak demand and more supply, you don’t have to be an economics major like me to know, (that's a) bad combo," Brochstein said.
Case By Case
However, the cumulative bottom line figure doesn't do justice to the reality that many of the companies are very different and need individual due diligence by investors to figure out if they're poorly managed or well-run and simply weathering harsh market conditions, Brochstein said. Painting the entire sector with a broad brush regarding financial losses creates an inaccurate picture.
"Every company is going to be different," Brochstein pointed out, adding that the list of 24 companies includes several companies on which he's quite bullish, next to others that he said are "piles of poo."
"Statehouse comes to mind," Brochstein said derisively of the California-based MSO that lost more than $240 million last year. "iAnthus. Disaster. MedMen. Disaster."
But Brochstein also praised Nevada-based Planet 13 Holdings and Florida-based Trulieve.
Operational cash flow for each company is also another important factor for investors to consider, said Karnes, who pointed to both Trulieve and Illinois-based Green Thumb Industries as having posted solid performances in that regard.
The same individuality also applies to each U.S. state market, given how they're all structured independently of each other. That makes every company's market dynamics different.
But one of the biggest issues undergirding the 2022 financials, Brochstein said, is a lack of interest by serious investors.
"The problem is that the retail investor that has supported the cannabis industry has put too much money into it and wants out, period. And we have no way right now to get new investors, especially institutional investors. That is the big problem. Falling estimates are part of that, because they lead to, nobody wants to buy," Brochstein said.
Will It Turn Around?
Karnes believes companies will improve on their 2022 performance this year, if only because it would be hard for the 24 companies to fare worse. And, he noted, the writedowns were one-time charges.
Many of the public companies also have been cutting costs, laying off employees, and implementing new efficiencies - trying to wipe out the red ink.
"I have to believe we’ll see more companies turn a corner" in 2023, Karnes said.
Still, he's not impressed by the performances of companies that have so far released their financials for Q1 2023.
"This year, it’s going to be tough. I think there’ll be some clear winners. But the guidance for this year hasn’t been all that significant for growth," he said. "But clearly, when prohibition ends, that will change the game dramatically."
Brochstein was more circumspect about when or how the sector may see a widespread turnaround. He said if cannabis companies are able to uplist to exchanges such as the Nasdaq, that would attract more investors, which will be a much more long-term solution for the sector.
"A lot of the pricing pressure was very short-term, and absent any changes, there should be better profitability. I do hope that," he said, but added, "Do I think it matters? Probably not. ... We need more investors to show up and buy stocks. And being on the Nasdaq would help, and getting rid of 280E I know would help."