The economy goes in cycles, and there’s always a mix of good and bad times. The recent COVID-19 pandemic has thrown a wrench in things – the economic effects are far beyond the housing bubble crisis that started in 2006. But while industries like the hospitality industry have taken a massive hit, some MSOs are doing quite well. Not every multistate agency is knocking it out of the park, but some are doing something right. Let’s look at some of the factors allowing MSOs to prosper during tough economic times.
One: Cash reserves
While many MSOs are postponing growth, selling off assets at rock-bottom prices, slashing jobs, and cutting overhead like mad (ahem, MedMen Enterprises, and Acreage Holdings), others are good to go. Curaleaf, Green Thumb Industries, Cresco Labs, and Trulieve are some of the MSOs holding steady in these turbulent times.
It all comes down to cash. The MSOs that have tucked away enough green to sustain them for well over a year are in a stable position. A Marijuana Business Daily Investor Intelligence webinar revealed that as of Dec. 31, 2019, Cresco Labs had enough cash to last 70 months, and Trulieve has 44 months of cash reserves.
The MSOs in trouble are those that have less than a year of cash to cover expenses. That means they need to hustle to generate investment funds or instantly turn their operations profitable.
Two: Market position
Having a strong market presence is critical, but the cannabis industry can be fickle — each market is different, and regulations depend on the area and state.
Try this: be the big fish in a small(er) pond. If you’re dominating the Portland, Oregon market, maintain that base. It’s more important than being one of the hundreds of forgettable brands in smaller retail shops and markets. Your distribution area is concentrated, your customer base is more likely to expand, and that comes back to affect the all-important cash flow. Start small, stay healthy, and build from there.
Three: Decisive management/robust business model
What started as a start-up venture flush with cash, investors and possibility can quickly morph into a cash-starved failure. Many times, the foundation for all of that headache is indecisive management and a fluctuating business model. Both burn through cash like crazy, and when the economy struggles, many formerly optimistic entrepreneurs find that they are no longer in business.
MSOs investing time and research into developing a resilient business model are doing better than most, mainly when their management/leadership stays the course.
What it all comes down to is focusing on the end game. Anticipate bad times and prepare for them. Spend cash wisely. Realize that investors are getting savvy to the realities of the cannabis industry, and return on investment is essential. Forget getting distracted by all the sparkly new gadgets, methods, infrastructure, and unrelenting drive to expand at all costs. The standards that apply to all businesses apply to the cannabis industry, too: a solid balance sheet, a thoughtful business model, and reliable performance by leadership