Beware 2024, Cannabis Firms

“You are playing checkers while they are playing chess”.

This old saw teaches us the importance of strategic thinking.  The checkers player thinks very narrowly and only one decision ahead, while their opponents consider many more variables and plan their strategy for the long-term – and ultimate success.

My post is for the cannabis chess players working through their 2024/5 strategic plans.  If it’s a proper exercise, the participants will be looking beyond the usual buckets like production, markets and pricing to include macroeconomic and geopolitical considerations in their analysis. 

A lot can go wrong in 2024, all of which is beyond the control of an individual firm. 

Here are 4 things managers and Boards need to understand and mitigate through scenario planning:

1. Continued US polarization

We are moving into an election year with two unappealing octogenarians leading their partisan parties and a trio of parochial Congressional leaders (McConnell, Schumer, Johnson) with the ability to derail or delay sorely needed cannabis reform.  Its tough to envision smooth legislative sailing, let alone policy implementation.

2. Global Hotspots

We have seen the impact of the fight-to the-finish Russia/Ukraine War on food & energy prices, supply chains and government priorities. Other geopolitical problems have emerged.  

Hamas’ terror attack on Israel and the latter’s invasion of Gaza has hurt their cannabis sector and the pace of future reform. The odds of Iran further stoking Middle East tensions are high.  This escalation and the resulting American+Ally response could trigger an increase in oil prices and a supply disruption should Iran’s oil facilities be attacked, or they close the Straits of Hormuz.

3. New Threats

China may move on Taiwan. There is an upcoming election in Taiwan where the Independence (read Anti China) Party is polling well.  China has been amping up military pressure over the past few years.  Some pundits believe their window for major action (e.g., attack, blockade or seizure of mainland Taiwanese assets) is at most a year out. These actions could have a big impact on global growth, equity markets and supply chains. 

Other historical conflicts between North/South Korea and India/Pakistan lie dormant but not extinguished   

4. Persistently Expensive Capital

The onset of high, long term interest rates is not what firms hope for but it’s what the markets believe, according to The Economist Magazine.  High rates will lower the profitability of debt-heavy firms plus reduce the availability of capital for early-stage businesses or those with problematic balance sheets.

#strategicplanning # scenarioplanning #geopolitics #2024 #interestrates #risk