There is a perception that licensed legal cannabis businesses are essentially printing money. Year after year, mainstream news articles tout the exponential growth of the industry, the record-breaking sales figures each 4/20 and the increasing number of states enacting or considering legalization. However, these reports exclude how increasing competition, festering federal uncertainty, a prospering illicit market and crippling taxes and regulations chip away at profits. In fact, due to 280E, a typical multi-state operator is paying an effective tax rate of more than 60% each year, while Amazon's effective federal income tax rate was 6.1% in 2021.
Under the best of economic conditions, the circumstances cannabis businesses function under are challenging to navigate and maintain a profit. But today, the cannabis industry is at an inflection point. Wholesale prices are down double digits, the illicit market is running rampant and increased competition is driving price compression and out-of-control discounting among retailers and brands, reducing profits even further. Seemingly under siege on multiple fronts, cannabis businesses are struggling more than ever in the legal industry’s brief history.
