The legal cannabis industry continues to grapple with a formidable adversary: the $79.3 billion illicit market. Beau Whitney, founder and chief economist at Whitney Economics, highlights the persistent threat posed by this underground market, emphasizing the significant competition it presents to legitimate businesses.
While federal rescheduling of cannabis holds promise for the industry, Whitney cautions against expecting a quick fix. While it could open doors to traditional banking services and capital markets, the complexities of the regulatory process and the potential for political shifts create a significant level of uncertainty.
Despite the uncertainties, Whitney believes that the current state of the cannabis industry is unsustainable. According to his data, U.S. cannabis sales are projected to reach $28.8 billion in 2023 and $29.1 billion in 2024. However, only about 20% of cannabis licensees are profitable, leaving many businesses financially precarious. The total amount of delinquent payments amounts to a staggering $3.8 billion, representing 1.6 months of 2023 sales.
Beyond rescheduling, Whitney expresses concern about the heavy regulatory focus on hemp, arguing that it limits the potential for adult-use and medical cannabis markets. He believes that this focus hampers growth and access to traditional retail channels, ultimately perpetuating the illicit market.
Whitney further criticizes the overemphasis on cannabinoids, highlighting that it leaves crucial responsibilities unaddressed. While rescheduling could provide some relief, especially concerning Section 280E, which restricts tax deductions for cannabis businesses, it wouldn’t be a comprehensive solution.
To address the multifaceted challenges facing the cannabis industry, Whitney calls for a fundamental reevaluation of regulations. He points to the imbalance between public safety concerns and the needs of industry operators, arguing that regulations are too focused on public safety and do not adequately consider the health and well-being of operators.
As the Benzinga Cannabis Capital Conference approaches, Whitney’s insights are expected to stimulate vital discussions about the future of cannabis regulation and the industry’s economic health. The conference, featuring industry leaders and experts, will provide a platform for addressing these crucial issues.
