The second quarter of 2024 has revealed some interesting trends in the financial performance of cannabis companies. Notably, US multi-state operators (MSOs) are demonstrating a strong commitment to cost-cutting and efficiency improvements in their supply chains.
Despite navigating a challenging market landscape with lower wholesale prices, heightened retail competition, and additional taxation, most MSOs have successfully maintained, and in some cases, even enhanced their cost performance.
Data analyzed by Viridian showcases this trend. Six out of the top eight MSOs, including Green Thumb Industries, Curaleaf, Trulieve, Verano, Cresco Labs, TerraAscend, AYR, and Ascend Wellness, reported a decrease in their cost of goods sold (COGS) as a percentage of revenue compared to the previous year. This reduction indicates that these companies are effectively managing their production costs, even amidst market complexities. However, AYR and TerrAscend experienced an increase in their COGS, suggesting they may face more significant operational challenges than their peers.
Furthermore, six of these eight leading MSOs also reported lower selling, general, and administrative (SG&A) expenses relative to their revenue in Q2 2024 compared to Q2 2023. This trend demonstrates the companies’ commitment to financial discipline and increased efficiency in their supply chains. The reduction in selling expenses is likely driven by favorable market conditions. With the expansion of new markets in Ohio and New York, these companies anticipate increased sales, which is expected to further improve their financial performance in the latter half of the year.
MSOs have become crucial players in the US cannabis market due to the country’s unique legal framework. As cannabis remains illegal at the federal level, businesses must navigate a complex web of state-specific regulations, rules, and pricing. MSOs are designed to handle this complexity, allowing them to expand operations across state lines while complying with varying laws. This strategic approach enables MSOs to reach a broader customer base and achieve economies of scale, driving down costs and increasing efficiency. However, compliance with state-by-state regulations adds significant costs, increasing operational expenses.
Recent Q2 reports demonstrate that most MSOs are prioritizing cost reduction. The potential rescheduling of cannabis could significantly enhance their financial performance by easing the overall tax burden. This focus on cost control and operational efficiency highlights the MSOs’ commitment to navigating the complexities of the US cannabis market and achieving sustainable growth.
