Was The 2019 Cannabis Industry Slump Caused By Overspending?

Was The 2019 Cannabis Industry Slump Caused By Overspending?

It’s a curious question to ponder: was the 2019 cannabis industry slump caused by overspending? Perhaps. Was the overspending a direct result of meeting extensive regulatory requirements? Perhaps. Were the folks that followed the rules, invested vast quantities of money into a newly legal industry, and prayed that the goldrush continued (or at least until they made their money back) totally hosed? Perhaps.

Let’s face it — the cannabis industry blew out of the starting gates like a racehorse when states started legalizing it. The scene was like a gold rush with promises of high prices, lucrative sales deals and brand recognition. I personally know more competent, hard-working and honest people who have just had this industry kick the shit out of them (pardon my French).

The reality was setting in after the first year, or when prices were not what they were “supposed” to be, folks were still trying to unload last year’s harvest right around the time the next crop was trichomed out and ready to roll. Those that managed to have some money around for the next harvest quickly found new regulations to meet, and that all cost money.

So was it overspending, or over-regulation? Or, in the case of Oregon, my home state, was it a perfect-storm combination that included massive investment, huge yields, market glut, and a limited customer base (meaning within state lines)? Maybe. That left no place to sell the tons and tons of excellent ganja that — if the opportunity for interstate commerce was allowed — could be distributed out of state so the fine folks of Washington could partake of some southern Oregon sun-grown cannabis?

So what’s the situation?

First off, we need to remind ourselves that this is new to everyone, black market growers included. Having an industry straddle the line so succinctly between legal and illegal is hard enough; throw in some clueless legislators, some savvy ones, and a bunch of social stigmas (including some federal stinkeye) and you’re already facing an uphill battle. This industry requires nothing less than a limitless well of patience and funds.

So. Much. Damn. Money was spent on infrastructure development, and without any proper banking or lending opportunities, that meant that cash had to come from private sources. Money was in constant demand, as people literally built a new industry, from product cultivation to brand creation to supply chain to retail shops. These money trees (i.e., optimistic private investors) kept payroll coming, supplies en route, and adhere to the regulatory hurdles. Most haven’t seen a dime in return on their investments yet. Remember what I said about patience?

Again: was the slump caused by too much spending? I’m still not convinced. The year 2019 replayed, over and over, an overestimation by company leadership (many who are brand spanking new to the world of weed) of what they, as the industry “big guys”, had in terms of market share — from what they could realistically produce to what the capacity of the retail market could bear — all further enhanced the pain experienced by the industry. Not knowing your audience (both those that made your production simply possible, like regulatory bodies — and the canna-culture of the consumer) was a fatal blow for some businesses.

Companies are now facing investor fatigue. Savvy investors, used to dealing in established industries, are over the “stories” behind the brands. They want cold, hard facts. Investors are looking for longevity and the data to back it up. These people know their way around a business plan, a financial forecast, and P&L sheets. Merely being a formerly successful illegal grower of marijuana isn’t going to convince most deep-pocket investors to commit, not when millions and millions of dollars are on the line.

Serge Chistov, in Cannabis Business Times, says that in addition to the vague notions by the FDA about their official take on CBD’s safety, market saturation was a vital component of the dire straits of cannabis in 2019. To separate the successful companies from what will be the losers, the ability to maintain enormous (and costly) infrastructures while essentially throwing piles of money away will most likely mean a difference of life or death for many companies (farms, retailers, etc.) out there.

In the end, it’s all about playing the proverbial long game, and the cannabis industry is certainly no exception. The cannabis industry will recover. The industry will continue to gain legitimacy. Heck, it might even be legal federally before long. All indicate a bright future for what is, in essence, just a funky flower.

About Jessica Ginet

Jessica Ginet writes for Green Scene Marketing and lives in southern Oregon. A former Tier II recreational cannabis farm manager, she cultivates (and enjoys) smokable hemp and sun-grown cannabis.