The cannabis industry is booming, with stocks rising 380% in the past 12 months. With the launch of new and large recreational marijuana markets in New York, New Jersey and Virginia, the industry is expected to double again in the next six years. Founded in 1993 by brothers Tom and David Gardner, The Motley Fool helps millions achieve financial freedom through our website, podcasts, books, newspaper columns, radio programs and premium investment services. With such strong cash flow, Green Thumb Industries is in a strong position to undertake acquisitions and further expansion next year without diluting its shareholders.
It has been expanding to several states, including New Jersey, which recently legalized recreational marijuana. However, the competition in the fully legalized marijuana market puts a lot of pressure on companies to keep prices low, which erodes profitability. Village Farms offers the best value for money from the stocks listed here, but unless you're particularly interested in the Canadian marijuana market, you're probably better off going for an American one. And while all the multi-state operators present here will continue to generate large numbers of growth as more states legalize marijuana, Trulieve Cannabis Corp is the cheapest stock on the list and the one I would choose today. A new study belies any assumption that the U.
S. cannabis industry is an easy business to make a profit from, with 37% reporting that they operate without one. The survey was of 396 Americans from the National Cannabis Industry Association Cannabis Operators. The conditions were among the worst in the Golden State.
Only 26% of those surveyed said their businesses are profitable. More than half said no, while 17%, like Mike Benziger from GlKentucky Farms in Glen Ellen, Sonoma County, feel their businesses are breaking even. Benziger points out that his marketing skills have helped him. Diversifying the plants you grow represents the other saving grace. In addition to cannabis, he also grows savory and dandelions, which are used for wellness products.
Benziger said things would be different for legal companies if there weren't an overabundance of products from illegal producers who undercut prices. Competition with illicit producers represents 1 in 4 challenges cited in the survey. Other obstacles include excessive taxes, price volatility and lack of ability to open bank accounts. Legal cannabis commercial operators have coined a new term “prohibition through legalization” due to what they consider to be overly strict compliance regulations. California companies can operate with local government approval but this imposes its own rules through ordinances. When less than half of jurisdictions across the state pull the welcome rug, it has a negative impact on legal operators' sales.
Local economies suffer when companies leave. Like many industry experts, technologists believe that legislation must change to make things more profitable for cannabis companies. For example, reducing taxes and reducing regulations would be a start. Beyond growers, other legal cannabis companies in the supply chain are struggling too. When asked in the survey about their level of confidence over the next year, more than 12% of test center operators said they expected to “get out of here” due to their vulnerable business model. Test laboratories are vulnerable in a competitive market because customers will change companies when they don't get the results they want. Since cannabis operators along the supply chain seek to obtain the best laboratory test results needed to comply with state regulations, many are turning to “laboratory purchases” to achieve the highest level of potency. CannaCraft's Director of Government Affairs Tiffany Devitt said that her company estimated that it consumes up to 4 million pages a year printing documents to comply with California government regulations.
Even so, there is resilience and optimism behind the industry. Devitt believes that things will improve as authorities and government officials realize their difficulties. For example, California's Department of Cannabis Control has just amended some guidelines including a section that now eliminates the need for producers to weigh each individual plant. Cannabis still faces stigma as only a “culture of stoner smokers” when in reality patients and users come from a wide range of backgrounds.
Since federal government still considers cannabis an illegal Schedule I drug under Controlled Substances Act many banks hesitate to work with cannabis companies out of fear of losing FDIC membership or receiving money laundering charges related to “drug trafficking” despite legal status in many states. In addition many ancillary businesses can be started by focusing existing business on cannabis sector or by developing new brand specifically associated with it.