This may be the year that the cannabis green rush hits the wall. Like other good ideas that blew up into frenzied manias – the Internet bubble of the late 1990s, for example – a lot of money will be lost before the real fortunes are made. Signs of a developing bust are abundant.
In the last year or two, investors have poured tens of billions into startup and early stage companies with great stories to tell and not much else. That bubble has already begun to deflate. The Canadian Marijuana Index, which tracks the aggregate market capitalization of a portfolio of publicly-traded companies, lost half its value in 2018. Today it is still down by about a third from the all-time high, with nothing on the horizon that would provide a fresh jolt.
Vendors that cater to the cannabis industry are starting to complain that their customers are paying slower. Online news site Marijuana Business Daily reported this month that professional services firms like consultants and accountants are feeling the pinch as their clients cut back on spending, hoping to ride out the downturn.
On the consumer side, recreational cannabis has been such a hit in California, and so few cultivators have been licensed so far, that the demand for legal marijuana is outstripping supply. It’s gotten so bad that, “The world’s largest cannabis industry is on the verge of collapse,” says Sebastopol, California attorney and consultant Lauren Mendelsohn. She reports that legalization has not only failed to crowd out the market for black market marijuana, it has made legal weed so expensive it can’t compete.
In order to grow legal marijuana in California cultivators must jump through hoops for a mob of state agencies, each with its own agenda, regulations, and enforcement authority – Water Resources Control, Conservation, Fish and Game, Food and Agriculture, Forestry and Fire Protection, to name a few. And then there are multiple levels of taxing authorities. And that’s just one of fifty states that each have a unique set of rules and enforcement priorities.
On top of all that, few US banks will even take deposits from cannabis-related companies as long as marijuana remains illegal at the federal level. Even the National Hemp Association, a lobbying group that does not grow or process cannabis products, had its accounts at a Pennsylvania bank shut down just because of the organization’s name, says executive director Erica Stark.
Published: March 18, 2019
Founder & Interim Editor of L.A. Cannabis News