Canix was an active participant in the Benzinga Cannabis Capital Conference that took place on April 11th and 12th. The conference was attended by thousands industry leaders, investors, and other stakeholders from around the world.
Throughout the conference, there were many insightful sessions covering topics such as regulatory compliance, market trends, and investment opportunities. Some of the key takeaways from the event include the importance of data-driven decision making, the need for standardized regulations across different states, and the potential for growth in the cannabis industry.
Below is a list of the top learnings we had from the Benzinga Cannabis Capital Conference.
2022 was an extremely difficult year for the cannabis industry, and headwinds persist.
In today's economic climate, many organizations have adopted the motto "endure and survive" as they navigate challenges related to profitability and cash flow. While this is a common concern across industries, there are also market-specific challenges that are emerging. In some states, such as New Jersey and Florida, the economic outlook is more positive than in others. However, even in these states, businesses are facing unique challenges, such as navigating complex regulations and addressing changing consumer preferences.
The rise of digital technology has created both opportunities and threats for businesses, requiring them to adapt and innovate in order to stay competitive. It is important for organizations to take a comprehensive approach to both short-term survival and long-term success, by staying ahead of market trends and investing in new technology and talent.
Underlying consumer demand continues to grow, creating long-term opportunities.
The overall industry revenue has grown significantly to reach a whopping $38 billion. Cannabis usage among the 20-29 age group has increased by 55% since the year 2010. This is a notable trend, especially when compared to alcohol usage, which has decreased by 11% over the same period.
Plus, unit purchase volume has increased despite the average ticket size being down. This could be attributed to the fact that consumers are becoming more value-conscious and are looking for ways to stretch their dollar. These insights about the cannabis industry highlight the growth potential of the market, especially with the growing demand from younger consumers.
Regulatory change would be a major catalyst, but timing is uncertain.
There were high hopes for the SAFE banking reform to pass in late 2022, but it did not happen. The outlook for SAFE passing in 2023 is less likely due to a divided Congress. Despite historical bipartisan support, Speaker McCarthy has never voted in favor of SAFE.
The White House has requested that the FDA review the rescheduling/descheduling of cannabis. A decision is expected in spring 2024. Rescheduling cannabis to Schedule III would eliminate 280E.
The industry has become overleveraged as equity funding dried up and companies turned to debt over the past 1-2 years.
Based on the current state of the cannabis industry, there is an observable overleveraging because equity funding has dried up and companies have turned to debt as a source of financing over the past couple of years. As a result of this trend, we can expect debt service to be challenging, particularly given the high interest rates that exist in the industry. This situation is particularly acute in the west coast markets. Given these challenges, it’s possible that debt providers are in for a reckoning, and we're likely to see a wave of defaults, workouts, and distressed situations in the near future.
Other topics of interest
- Generally negative perspectives on hemp-derived THC products (delta-8)
- Taking advantage of a Farm Bill loophole designed to support the hemp industry
- Hurting the cannabis industry, particularly in newer markets, due to aggressive marketing tactics and widespread availability (convenience stores, etc.)
- Risk of negative media attention and public backlash (potential for underage usage, unregulated safety / quality concerns)
- NY market is limited by proposed TPI rules that prevent vertical integration – not attractive for capital coming into the market. Legal operators are currently not competitive vs black market
- Paychex (#2 largest payroll provider in cannabis) exited the market two weeks ago due to issues with their bank partner
- Industry is still 65% cash pay. PIN debit and ACH are gaining share, but behavior change has been slow as bricks-and-mortar retail dispensaries still view ATM machine as a free stream