A 2022 mid-year analysis of the cannabis industry.
By Kaitlin Domangue
It’s June 12th, 2022. Somehow, we are halfway through 2022.
It’s been a year and a half since President Biden took office and honestly y’all, the cannabis industry is struggling.
We are by no means failing, but we are struggling.
Every cannabis report I’ve ever read starts off by happily citing our industry’s billion dollars in sales and the CAGR rate over the next five years.
And while these numbers are meaningful (and important to set the tone of the report) oftentimes, I think they are included without delving into what’s really going on in this industry. 🤷♀️
It’s true that the U.S. generated $24.5 billion in medical and adult cannabis sales last year. Canada saw almost $4 billion in sales.
But do these numbers mean we have a successful industry?
In my opinion, no. Our sales mean we are a nano-step away from mind-blowing success – but not there yet. And here’s why:
When you take a look behind the billion-dollar curtain, it is chaotic. And sure, all new industries are.
But, all new industries do not struggle to even become state-recognized industries and then struggle to stay afloat once they reach that point.
All new industries aren’t competing with the illegal version of your business. All new industries don’t come with a racial and general societal stigma.
All new industries don’t struggle to be recognized by literally everyone – banks, the IRS, software providers, social media companies, and healthcare companies. And on and on and on.
We aren’t failing, but we are just treading water. And I don’t think that’s a successful industry.
Because operators deserve the simple peace of knowing they can pay their bills and bring products to market.
All business owners, across all industries, can argue that paying bills and successfully bringing products to market is a core worry of business ownership.
But do all business owners have people actively standing in the way of their success? Those people are the federal government and all its related entities: banks, the IRS, healthcare institutions, and more? The most powerful & influential entities in the world?
- 37% of American operators say they aren’t profitable, according to a survey published just last month
- Just 26% of California cannabis businesses reported making a profit, as we know – industry conditions are the worst in California
- 72% of businesses say accessing banking and other financial issues is the top issue facing their business (not a problem in other industries)
- 62.5% of female-run businesses aren’t turning a profit and 67.8% of BIPOC-run businesses are not turning a profit
Now, I don’t want to be depressing, because in spite of our struggles: the cannabis industry is making strides that have exceeded the expectations of so many.
We are a resilient, passionate, and persistent industry and these unique, complex barriers don’t stop us from pursuing our mission. Even during the height of COVID-19, we stood strong.
I like to call the cannabis industry “startup land”. Because, well, that’s exactly what it is. Full of startups.
And when you look at the rate at which startups fail: it’s not great.
- 90% of new startups fail
- 82% of startups fail because of cash flow problems (sound familiar?)
- Only 40% of startups actually turn a profit
Comparing the cannabis industry to startups is reassuring because honestly, the two spaces are quite similar. 37% of cannabis businesses are turning a profit and 40% of startups turn a profit.
But most startups don’t have the barriers cannabis businesses do, making our success even more inspiring.
Despite the lack of federal reform, states are legalizing cannabis one by one. More U.S. states than not have legal cannabis of some kind, whether medical or recreational.
It’s clear more Americans support cannabis legalization than Americans who don’t.
19 states and the District of Columbia have legalized cannabis for adult use. 37 U.S. states, four territories, and the District of Columbia have medical cannabis.
States have been able to generate millions & billions of dollars in tax revenue from cannabis sales, which is redirected to programs often benefitting youth, underprivileged communities, or mental health services.
The revenue is used for different things in different states, but a few are:
- Arizona’s tax revenue is dedicated to the community colleges, municipal police, fire districts, Arizona’s Attorney General, Highway User Fund, and Justice Reinvestment Fund
- Colorado’s tax revenue goes to local governments, state governments, the general fund, the public school fund, and the cannabis tax cash fund
- Illinois’ (one of the highest-taxed cannabis markets in the U.S.) tax revenue goes to mental health and substance abuse, paying state bills, the general fund, local government, public education, and The Illinois Recover, Reinvest and Renew Program, which focuses on improving criminal justice in Illinois
The legal cannabis industry supported over 400,000 jobs as of January 2022, representing a 33% increase in jobs in one year.
- Florida’s colossal medical market alone supported 25,895 jobs and generated $1.5 billion in sales
- Massachusetts did $1.6 billion in total sales and supported 27,212 jobs in the cannabis industry
- Michigan’s cannabis sales reached $1.79 billion during this time and the state-supported 31,152 jobs
Several states have expunged cannabis records upon legalization, though we still have work to do:
- In Los Angeles County alone, nearly 60,000 records have been expunged for cannabis since September 2021.
- Illinois’ Governor J.B. Pritzker pardoned more than 11,000 people with low-level cannabis convictions in 2020 when adult cannabis was legalized in the state
- More than 15,000 people in Nevada were pardoned from minor cannabis offenses four years after Nevada legalized cannabis for adult use
It’s a far cry from 1996 when California became the first state to legalize cannabis for medical purposes. It was truly a landmark moment in cannabis history and the catalyst for a legal industry of any kind.
It’s been approximately 26 years since California legalized cannabis.
To put it into perspective, (at the risk of showing my young knowledge), I was born in August of 1996. Proposition 215,California’s medical cannabis bill, passed in November 1996.
To think the legal industry has been fighting for my whole life to be recognized blows my mind.
Not to mention the legacy market’s decades of work prior to 1996, and the work ongoing today.
It really makes me appreciate everyone who has been doing this since I was less than one year old, and even before.
I thank you because I remember crying in 2016 – terrified I’d be arrested for consuming cannabis. The only thing that helped my anxiety.
I tearfully emailed Illinois officials (who’d just legalized it for medical purposes a few years before) asking what I can do to help legalize cannabis in Missouri.
I nearly moved to Illinois because chronic anxiety has been a constant in my life since I was a young child, and cannabis helped like nothing else ever had, but Missouri followed Illinois’ lead in 2018.
What I’m thinking 🧠
It boils my blood to think that we have been fighting to be recognized as legitimate for so long.
The main culprit is our federal government. Little by little, states are making the United States a 100% green nation – despite what the federal government says. Cannabis is illegal in only 11 U.S. states.
I can only imagine the pressure on our federal government will multiply once the 50th state legalizes cannabis. Until then, I foresee cannabis businesses continuing to tread water.
In the meantime, we can push for an amendment of tax code 280e, which will immediately free up capital for American cannabis operators – and of course, remove cannabis from the list of scheduled substances.