What is the biggest challenge you currently face in keeping your business successfully operating within the cannabis industry?
Tiffany Devitt: Taxes, access to adult consumers, and competition from the illicit market.
On the tax issue, and for the sake of comparison, the state excise tax on a bottle of wine is 4 cents. For an eighth ounce of cannabis, it’s $4.90 or over 100 times more. Cannabis products are also subjected to countless local taxes. A single product may be taxed at cultivation, manufacturing, distribution, and retail. Some locals even charge a “road tax” for merely transporting products through their jurisdictions. These taxes compound throughout the supply chain, increasing the price to consumers by as much as 60 percent.
On the question of access to adult consumers, 61% of California cities and counties do not allow any retail cannabis businesses. In other words, California has ceded in two-thirds of the state to illegal operators.
Lastly, the illicit market has changed in dangerous ways. Since enactment of the 2018 federal Farm Bill, we’ve seen a proliferation of companies marketing synthetic THC-like products under the guise of hemp. In state-regulated cannabis markets, the maximum dose of THC per serving is commonly capped at five to 10 milligrams. In the unregulated “hemp” market, brands like Chapo Extrax sell products with hundreds of milligrams of synthetic marijuana per serving in direct violation of California law. The so-called “hemp” market is, in the words of Chapo Extrax, “the newest drug cartel in town.”
Competing with an illicit market that has better access to consumers and substantially lower prices is the industry’s biggest challenge.
Annie Holman: Access to capital paths that are closer to the “normal” market rates, plus access to additional funding opportunities overall. The inability to access capital has been a major stranglehold and has limited expansion within my business. And I would really like to be able to walk into a bank without feeling like a thug.
Brandon Levine: Taxes are the biggest hurdle. Most people don’t realize cannabis margins are slim and then there’s multiple layers of compounding taxes. Tax code 280e is the death of so many cannabis companies.
Pete Olander: As an entrepreneur, the biggest hurdle I face is navigating the financial landscape of this industry. The challenges are twofold: capital and human resources.
Like many others in this space, I’ve grappled with securing adequate funding. Due to the legal ambiguity surrounding cannabis at the federal level, traditional banking services are often out of reach for businesses like ours, this not only hampers our growth potential but also creates uncertainty about future revenues. In addition, the complex tax structures were subjected to further strain our financial resources. Without the ability to make standard tax deductions that other industries enjoy, our bottom line takes a significant hit.
The second aspect of this challenge lies in attracting and retaining talent. The cannabis industry is exciting and full of potential, but the obstacles we face can deter skilled professionals from joining our ranks. We need passionate, committed individuals who can help steer this ship through uncharted waters, and these hurdles sometimes make it difficult to attract such talent. However, despite these challenges, I remain optimistic. There’s a positive momentum building, with initiatives like the Safe Banking Act and the push for rescheduling cannabis at the federal level. If successful, these could significantly alleviate the financial pressures we face and pave the way for a more inclusive, thriving cannabis industry.
Erich Pearson: The over-taxation and overregulation make operating a legal business in California very difficult. These issues cause the illicit market to thrive, and this compounds our problems.
Tom Sheridan: Cash flow, lack of access to traditional borrowing, and tax structure present daily challenges. The regulatory and compliance challenges for cannabis businesses don’t exist in traditional businesses. Those challenges, coupled with lack of access, create unusual hurdles.
Nicole Skibola: Taxes. Plain and simple. Taxes are so high that consumers are opting to revert to the traditional market. It’s been pretty devastating to watch.
North Bay Business Journal heard from nearly a dozen local cannabis industry leaders for their insights on what’s ahead for a business in the midst of significant change. Here’s what they had to say. Read More