17 February 2022 |
Which Cannabis Companies Are Profitable in 2022?
By Kaitlin Domangue
Profitable Cannabis Companies
Breaking down who’s really making money in the cannabis industry…
Consumers are spending billions of dollars purchasing cannabis each year.
Still, many companies are struggling to turn a profit in an industry that was once flush with investors’ cash, when Canada legalized cannabis in 2018.
California alone has 823 licensed brick-and-mortar cannabis shops; so compiling a complete list of all the profitable cannabis companies in the United States would be difficult to say the least, especially when profitability changes quarter-over-quarter.
Additionally, the majority of small cannabis companies aren’t listed on stock exchanges, such that their financial reports are unavailable.
Nonetheless, a recent report from the Whitney Economics survey [https://whitneyeconomics.com/insights] in Q4 2021 indicated 42% of the cannabis companies surveyed were turning a profit.
A quick note: “cannabis companies” in this report means plant-touching cannabis businesses who are subject to federal tax code 280e.
While we are without the means to compile a list of all the profitable cannabis companies that exist today, certain multi-state operators who are publicly listed are leading the charge when it comes to publishing profits.
And before you say “it’s easy to turn a profit as a huge MSO” just remember: one of the largest cannabis producers in Canada; Aurora Cannabis has never once been profitable since the company went public.
Instead, Aurora Cannabis has been burning through billions of dollars — consistently failing to make money.
Nonetheless, here are a few MSOs who are actually profitable:
Trulieve reported its 15th consecutive profitable quarter in Q3 2021, with an adjusted EBITDA of $98 million and a gross profit of $153.9 million.
Curaleaf reported $317 million in revenue for Q3 in 2021, a 74% growth year over year. The Adjusted EBITDA increased 69% year over year, reaching $71 million.
2) Green Thumb Industries
Green Thumb Industries reported its seventh consecutive quarter of positive cash flow from operations in November 2021. Reported Adjusted Operating EBITDA grew 2.4% sequentially, reaching $81.2 million.
It’s important to note, being profitable in this context is measured in EBITDA = Earnings before interest, taxes, depreciation, and amortization, though there is controversy about whether or not cannabis businesses should rely so heavily on this metric.
Being Taxed Out Of Existence
The prospect of generating billions of dollars in new taxation revenue from regulating the cannabis supply chain is a primary reason governments have suddenly started embracing cannabis.
While it’s important cannabis companies pay their fair share, the current taxes cannabis companies are required to pay has put many companies in a position whereby producing profits is all but impossible.
Unsurprisingly, “excessive taxation” was one of the industry’s most significant issues, and a primary reason why generating a profit poses such a significant challenge for legal cannabis companies in 2022, according to the Whitney Economics report.
California’s Cannabis Crisis
Cannabis in California is a very unique market.
California is both the largest market in the U.S. & the largest cannabis market in the world, courtesy of the 39.51 million people living in the Golden State.
While being the largest cannabis market in the world might sound appealing, California companies were significantly less profitable than cannabis businesses operating in other states.
The Golden State’s cannabis businesses have been crying for help for a long time now, but this report sheds a new light on the dire situation:
18% of California respondents broke-even.
26% of California companies are profitable.
56% of California companies are unprofitable.
Profitability In Canada
Canadian producers still face their fair share of destructive tax structures, like in Ottawa, where excise tax can account for up to 22% of gross revenue.
As such, profitability hasn’t been the most common word in Canadian cannabis companies’ vocabularies since Canada legalized cannabis.
Canadian cannabis producers have sold less than 20% of their production since adult-use sales started in October 2018, as of December 2021.
The data from MJBizDaily implies most of the cannabis produced from 2018 to 2020 was in storage or destroyed.
Many cannabis businesses are unfortunately living on borrowed time, following millions of dollars in raises from investors, without having any clear path to profitability.
Nonetheless, we empathize with the position legal cannabis companies find themselves in today, whereby they have to contend with ridiculously high taxes and pay exorbitant rates when borrowing capital.
It’s easy to cast judgment on cannabis operators, even from within the industry.
Lots of people have ideas about what they’d do differently in an operator’s shoes and many times, they make valid points.
That said, we can’t pretend for a moment to know exactly what plant-touching cannabis businesses go through to stay afloat.
At the end of the day, all cannabis companies, whether large or small, are battling the same financial beast: excessive taxes. Excessive taxes make operating a business hard for anyone, even the most successful business people.
In Canada, the legal cannabis market’s reality just didn’t live up to expectations. After full legalization in 2018, Canadian industries immediately began preparing for the long-anticipated arrival of a new industry, but the green bubble burst. Now, Canadian cannabis producers are struggling to pick up the pieces and simply generate a profit.