Legalization News

Profits are a rarity: California’s new regulated marijuana market six months in

Half a year into California’s newly regulated marijuana market, it’s worth asking: How are licensed companies in the state doing financially?

The short answer: Many are struggling.

Chelsey Miles, a Sacramento-based accountant and consultant who works with licensed manufacturers, retailers and distributors, said most companies are “breaking even, but I don’t think they might be hitting their budget.”

And while some companies are doing well, many are having a hard time financially while the market stabilizes, according to multiple industry sources.

The harsh financial reality of 2018 has been a combination of:

  • Compliance with new regulations.
  • High state and local taxes.
  • Lost revenues to the  illicit market.
  • Supply chain uncertainties.

“The rose-colored glasses are off, and now it’s, ‘We’re looking at the bottom line, and we’re making decisions based on the bottom line.’”“(Operators’) eyes are more wide open as to what the actual industry is doing, as opposed to the green rush,” Miles said.

Where’s the money going?

The current situation has forced many businesses to either freeze hiring or begin downsizing.

“It’s kind of the good, the bad and the ugly at this point. We’re seeing members that are at various ends of the spectrum,” said Lindsay Robinson, executive director of the California Cannabis Industry Association (CCIA).

“I can’t imagine there are a lot of companies that are expanding rapidly. If they are, it’s probably cautious steps. We’re hearing mostly holding pattern or downsizing.”

Others are offering an even less positive picture of the industry’s financial health.

“I think the entire supply chain is in shatters,” observed Melanie Nash, director of operations at Dark Heart Industries, an Oakland-based nursery that specializes in marijuana clones.

“At every level, people are barely scraping by. And people are just looking for … investment to kind of get through this year.”

For instance, newly mandated childproof packaging for edibles makers and concentrate producers has caused costs to shoot up, said Tuan Le, director of business development for Oakland-based Brite Labs, a vape cartridge manufacturer.

“We were working something at 7 cents per unit, and now it’s 55 cents per unit” for child-resistant packaging, Le said.

The packaging requirement kicked in July 1, and because of that market disruption, a lot of Le’s competitors don’t currently have products on cannabis retail shelves, he said.

Many if not all of those brands will return, Le said, but when that might happen is an open question. Another one is how much that interruption in product availability will cost those businesses.

Le added that testing costs are going to triple for Brite Labs, in part because of a new standard practice for many suppliers – including both manufacturers and growers.

That is, product must be tested before it’s delivered to distributors. It serves as an insurance policy so that when product is then tested by distributors, it won’t have to be relabeled.

Several sources said testing costs for individual manufacturers and growers can easily run into the tens of thousands of dollars monthly.

To Read The Rest Of This Article By John Shroyer on Marijuana Business Daily

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Published: July 19, 2018


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