Sharp Fall in Profitability of Cannabis Operators

Stephen Andrews
26 Jun 2023

Fewer than 25% of marijuana businesses in the U.S. say they are profitable, reveals a new report from the Oregon-based leading cannabis economics data firm Whitney Economics. Last year's Cannabis Operator Sentiment and Business Conditions survey report found that 42% of cannabis operators were turning a profit.

Only 24.4% of cannabis operators in the U.S. report that they are profitable, which is down from 42% the year prior. This is a key finding from Whitney Economics' latest report, which evaluates the success and growth factors of cannabis industry operators. 

Operators also said that rising costs and falling wholesale cannabis prices are putting pressure on them. A lot of the growth factors also depend on state regulators who businesses say haven't kept up with the changing market and business conditions. 

Another issue highlighted in the report is the excess number of licenses being granted to operators, leading to an oversaturated market. Over 70% of respondents favor limiting cannabis licenses. 

The exceptionally high taxes that marijuana companies are subject to is also a burden. In 2022 alone, marijuana companies overpaid $1.8 billion in federal taxes, much more compared to other sectors, because of the U.S. tax treatment of the MJ sector. The figure is expected to surpass $2 billion next year. The focus on tax generation has not helped to create a friendlier environment for cannabis operators to thrive, notes the report. 

"The success of cannabis businesses is largely dependent upon the regulatory structure of the states in which they are operating, and also dependent upon many other factors that are beyond their control," says the report. 

"While cannabis operators have been forced to pivot multiple times, they also have much more at risk, as they do not have access to normal business protections," it adds. "If policies are more industry-focused and supportive of businesses, respondents feel that market conditions and operator sentiment will improve."

The report forecasts the next seven quarters will have "slower-than-normal" growth because of the complex economic reality of the cannabis sector right now. 

The data is based on answers from 224 operators coming from 13 states, representing 1.1% of licensees in those states, according to MJBizDaily

Stephen Andrews