7 Cannabis Predictions for 2023
“Why not go out on a limb? That’s where the fruit is.” Mark Twain
Here are my cannabis sector predictions for next year:
1. Consolidation continues
This will be driven more from companies going under than the strong buying/merging with the strong. Consolidation will be prevalent in low/flat growth markets like Canada, Michigan, and California. While difficult for affected workers and suppliers, consolidation will be a net positive for an industry with far too many players across the value chain.
2. New York stumbles
Yes, the state is inching towards a full opening - and a big policy and market snafu. High THC-based taxes (legal retail prices could end up being 2x higher than illicit prices), municipal opt-outs and an entrenched & emboldened illicit market is threatening to turn the state into California east.
3. Capital markets stall
Don’t let the latest rises in key market indices fool you. Lots of investors have abandoned high risk, alternative investments like cannabis for safer blue-chip harbours. Debt will become even more expensive than today, reflecting the rise in interest rates and worsening balance sheets. This funk will continue despite a backdrop of growing markets and improving profitability at many firms. Only meaningful regulatory reform will help change investor sentiments (see #6).
4. Persistent inflation
The cost of key inputs like fertilizer, energy and labour are up, and could go higher with a cold winter plus more geo-political strife. This should result in wholesale/retail price increases, but it won’t. The illicit market and a myriad of producers (who will seek to gain/keep market share) will continue to exert downward price pressure. Margins will continue to take the hit.
5. Talent shortages
Anecdotally, there seems to be more skilled, experienced people leaving cannabis than there are coming in. At a deeper level, turnover is occurring because of low employee engagement and pay levels relative to other sectors. Shortages are problematic for a new industry that is trying to grow and professionalize without a playbook.
6. Regulatory inertia
Nobody really knows what will happen with SAFE, interstate commerce, and 280E not to mention Health Canada regulations. It is always about priorities and politics – an insider’s game with its own logic and cadence. Plus the status quo benefits many. Cannabis leaders should assume 2023 will be just like 2022, and not party like its 1999.
7. Germany stalls
I have never seen a jurisdiction go legal on the day predicted by its political sponsors. There are so many political, bureaucratic and economic moving pieces in Germany to believe some form of legalization gets pushed into 2024.
#2023 #Germany #regulations #NewYork #inflation #capitalmarkets