The Pandemic is “Over,” the economy is shaking off upended energy prices, but economic headwinds are clearly on the agenda for this year
There is no such thing as a recession-proof business. The cannabis industry defied the odds during Covid, booming in certain places, and again prompting a giddy optimism that, sadly, so far, is still widely misplaced.
This is true just about everywhere. Deal flow is down. The worth of deals themselves has declined drastically. Big companies like Tilray are still reorganizing and shedding staff, including in Europe. It is of course far from the first slowdown. The hangover in the year after the bid, in 2019, certainly in Europe, however, was offset by the fundraising prowess of at least a few companies that managed to carve out market share.
However, all is not gloom and doom. Yes, the markets including globally are getting far more competitive and cannabis pricing, as a commodity, is starting to stabilize. This means that this business is going to look more like a business from the P&L perspective rather than fluff.
But don’t worry. There will also be fluff aplenty in the cards this year, including the inevitable demise of the Delta 8 market, the renewal of the US Farm Bill, all the contretemps in Europe at both the domestic and regional level, and the inevitable opening of further Asian markets.
Nobody at this juncture can accurately predict what is going to happen where, but here are a few things that are bound to happen.
Investors will demand more:
No matter the initial excitement in the United States as new states continue to open, the problems now overhanging the entire industry will continue to fester until they kink out. This includes the knotty problems surrounding corporate cultivation, particularly in first world markets. The Bullshit Detectors are also in overdrive mode right now because despite all the hype, even the biggest companies have still to find a business model that works and makes profits long term.
The Cultivation Equation Is Increasingly Transparent:
While everyone has an opinion on what cannabis “should” cost, the reality is that different markets have so far driven prices in highly segmented and protected subregions. The global pathways to market are still not efficient, there are plenty of regional “gluts” and many other issues, but things are increasingly streamlining. This means that more people understand what the cost of production actually is, and where, and are going to be less and less willing to dicker around about silly pricing.
The Recreational Market Will Create a Long Regulatory Debate:
Forget the discussion about legalization. Once that is done, there is still a long and winding road before the industry enters a period where it is smooth if not autopilot sailing – aka cannabis autobahn. That said, sure there will be periods of extreme hype around certain events including German legalization and the triggers this will then trip in Europe. Even if the Bundestag passes legalization in the summer of 2023, it will take at least 12 months to create a working market. Beyond this, there are other major kinks to work out that include Novel Food, as well as all the discussions about pricing, THC concentration (and what it is allowed and packaged in). And let’s not forget taxation.
Cross-border sales are limited to Medical (CBD Is Still Problematic):
The only surefire bet right now is that EU GMP rules the day – and even if it crosses European borders as “technically” GACP, the local certification process is required before widespread EU sales will be possible (and let’s not forget product registrations). This is also going to be a major factor in determining whose cannabis ends up where. For now, Africa and South America are Europe’s best bets beyond what is grown in Europe.
There are glimmers of hope:
Despite all the restructuring, resizing and general gloominess surrounding any discussion of “the industry,” right now, everyone who works in it knows that this too, will pass. There is too much ground to still cover, there are too many bright, entrepreneurial people who are excited about this revolutionary plant even when the laws of gravity, common sense, and the market still apply. Getting rich quickly is increasingly a discussion that is tempered with the understanding that nothing is easy and nobody, really, is making money as a result. But who cares? The opening of the cannabis discussion is one that will continue to reverberate in a world now finding its way through multiple crises and increasingly looking for new answers to now urgent and pending problems.