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Legal weed may be one of the most lucrative new industries in the US, but high costs of compliance are making it hard for many small weed business owners to survive. According to a recent survey conducted by the National Cannabis Industry Association (NCIA), 37 percent of cannabis business owners said that they haven’t even been able to turn a profit.
Out of 396 state-legal cannabis business owners polled by the NCIA, only 43 percent said they were running profitable businesses, while another 20 percent said they were just breaking even. And in California, the country's largest legal weed market, conditions are even worse. Out of all Golden State businesses that responded to the survey, 57 percent said they were losing money. Only 26 percent said they were profitable, and 17 percent said they were breaking even.
“This is no surprise,” said Beau Whitney of Whitney Economics to the North Bay Business Journal. “The narrative out there is that everyone is swimming in cash because of cannabis. But for many, unless you have $2.5 (million) to $3 million, you’re not able to cover a loan or rent or health care.”
Some weed business owners are accusing adult-use states of “prohibition through legalization” - essentially using high taxes and overregulation to prevent people from actually succeeding in the business. Federal regulations also prevent cannabis businesses from opening bank accounts, receiving loans, or accessing federal financial aid, making it even harder for small businesses to succeed. And since pot shops are forced to operate on a cash-only basis, they have become a prime target for robberies.
Excessive regulations also waste massive amounts of natural resources. Tiffany Devitt, Chief of Government Affairs for Santa Rosa-based legal weed producer CannaCraft, told the Business Journal that her company uses 4 million sheets of paper every year to print all the documents that the state requires. Devitt described the situation as “environmentally ridiculous.”
Packaging requirements also create vast amounts of plastic waste, while further driving up the operational costs for pot producers. All adult-use states require legal weed products to be packed in child-proof containers and thoroughly labeled, creating several layers of plastic and paper packaging. Some companies are working to mitigate the problem with hemp-based packaging or recycling programs, though.
“I think we’re in the business where it’s the toughest and the profit is the hardest to get,” said Mike Benziger, cannabis cultivator at Glentucky Farms in Sonoma County, to the North Bay Business Journal. “When we became an industry driven on price rather than quality, that’s when it became tough.”
“This business is designed to take big hits. But the only way small growers will be able to survive is if they already have money or can make sales on-site,” he said. That latter option is prohibited by California regulations, though.
Competition with illicit pot dealers is another major issue that cuts into legal businesses' profits, especially in California. The Golden State currently has some of the highest taxes and costs of compliance of any adult-use state, and black market dealers are able to offer much cheaper product by skirting these costs.
So far, state officials have chosen to tackle the problem by raiding illegal pot farms instead of lowering taxes and fees. Last year, several weed businesses started drawing up plans to withhold their taxes to protest the state tax regime - but since state cops make a practice of raiding weed businesses that fail to cough up their dues, a tax revolt may not be much of a success. Lawmakers are finally considering tax alternatives, however, and many towns and counties have also stepped up with temporary tax relief.