As Cannabis Becomes More Accessible, is it Still Profitable?
Profitability should be the first question any new business owner considers. Cash flow is the number one concern when it comes to cannabis business profits; any business owner looking to stay in the black needs to either be a very strong financial manager or hire one. How cannabis is profitable, though, is a deeper dive which new entrepreneurs, as well as seasoned industry professionals, must weigh regularly. As evident in other industries which experienced bubbles of growth, the public’s accessibility to cannabis products does not always equal profitability. As cannabis becomes more accessible across the United States, those new to the industry, as well as those aiming to stay relevant, must review the environment.
Here are a few potential obstacles to robust cannabis business profits:
- Business deductions are often the best way to elevate profits, however, cannabis companies cannot reap the same beneficial deductions as other businesses, such as rent, office supplies, inventory and advertising because marijuana remains illegal at the federal level. Therefore, IRS deductions do not apply.
- In the same vein, taxes paid for cannabis businesses are under extra scrutiny and must be completed very carefully, which costs both time and resources. In 2020, the U.S. Treasury released a report saying the IRS should step up its capacity to audit these businesses. Further, ignorance of Section 280e in the tax code could cause additional expense.
- The federal status also often leads to inadequate banking options, which can result in theft, as well as difficulty obtaining proper insurance. Incorrect coverage after damage can mean a devastating blow to profitability or the end of the business itself.
- Tough regulations on growth, distribution, packaging and retailers can be expensive to maintain compliance and habitually vary from state to state. Differences can also exist between medical and recreational products, incurring additional expenses for those in both markets.
Although once an area ripe for solopreneurs and entrepreneurs, multiple major corporations have pushed out small businesses, as well as local farms and distributors, in many areas. Name recognition may have to be battled with bigger marketing budgets.
Despite the potential impediments, good news is available for those determined to have the most profitable cannabis business around. First, is the accelerated growth of the market brought on by COVID-19, as homebound consumption became more in demand. Cannabis sales jumped by over 40% in 2020 compared to 2019. Further, as more states legalize, more markets are opening up for new businesses and some state legislators have become aware when crafting legalization bills that small businesses need protection within the marketplace.
As options for consumption expand, more people than ever are trying cannabis, especially those hesitant to smoke. Products include wax vaporizers, infused beverages and sublingual drops. Additionally helpful are goods containing CBD, Delta-8 and Delta-9 as a part of the industry, which appeals to an even wider audience who may be fearful of trying cannabis or are in a state where it remains illegal.
Profitability has other ways of manifesting itself within the industry. According to economists, investing in human health is the best thing an entrepreneur can do in 2021, as an investment in a world emerging from a pandemic can improve both the domestic and world economy. A simple query on Google search for “cannabis stocks” will result in about 27,000,000 results, meaning many interested parties exist; this aspect of the cannabis business is perfect for both consumers and non-consumers.
Cannabis Business Profits Continue Increasing
A final point for consideration is that as domestic suppliers grow, dependence on international markets, such as Mexico, declines and along with it the associated costs and dangers. Reporting shows marijuana seizures along the southwest US-Mexico border have declined by more than 81 percent between 2013 and 2020, suggesting Mexican cartels have considerably scaled-down their marijuana trafficking operations. A high-ranking Sinaloa Cartel operative in Sonora state told InSight Crime the marijuana business is “barely profitable now.” He said “I only traffic marijuana to pay some of my people in the organization. I’m paying them with kilograms [of marijuana] that they manage to smuggle and get paid for, but it’s really coming to a point where it’s no longer a viable business.”
Along with these tips about how cannabis is profitable, establishing a loyal customer base is the best way to maintain cash flow and enjoy true profitability. Offering a variety of top-notch products via a solid compliance culture and informed budtenders will earn the trust needed for a successful business. From the cannabis itself to the best storage solutions, a one-stop-shop is always preferred. Consider stocking FreshStor created and manufactured CVaults and EVaults, made from stainless steel and designed to keep out excessive light and moisture. Even the best product can be made better through thoughtful storage!