Owning a marijuana business is harder than ever, and a new survey from Portland-based cannabis consulting firm Whitney Economics paints a bleak outlook on the current environment. We sat down with Whitney Economics founder and chief economist Beau Whitney to talk about the implications of the survey’s results.
This interview was edited for length and clarity.
The Paper.: Can you tell us about the 2024 Cannabis Industry Business Conditions and Sentiment Survey?
Beau Whitney: For the last several years, we’ve sent surveys to licensees in ancillary businesses in the cannabis space, and we’ve asked them very similar questions, year over year, over year, so that we could get a baseline of data and see how that changes over time. A lot of questions center around: “Are you profitable? What are your feelings about the future? What are some of the things that keep you up at night?”
And in doing so, we’ve been able to chart, over time, the profitability of the industry. For example, the demographic makeup of who’s more successful than others from a profitability standpoint, and then what are some of the obstacles that are preventing them from being successful in the space?
Having that baseline of information has been extremely helpful. This year’s survey was just one in a slew of surveys that we’ve done.
One of the driving forces in this was that we were trying to provide some more granular data on the impact that the Schedule I status was having on small businesses and minority businesses. And through that, we asked some questions on the size and makeup of the businesses and the like.
Those results were fascinating, because basically, they demonstrated that there’s a wide gap between white owners and non-white owners, in terms of profitability. It also leaked into their sentiment and their optimism about the future.
We provided this data to the Minority Cannabis Business Association, and they provided it to the DEA and the Office of Management and Budget as part of their public submission for comments on the impact that rescheduling to Schedule III would have on their group of businesses.
We did a general survey—we asked some typical and standard demographic data—and then we were able to provide insights to MCBA for their comments to the DEA.
When you look at this from different vantage points — from small businesses or from women-owned businesses or minority businesses — there’s a much different story to be told than there is if you look at it from a multi-state licensed producer of cannabis. Teasing out those details, we think, is very helpful, not only for operators — so that they can use that in their business decision making processes — but also for policymakers to see just what is the more granular impact that their policies or lack of policies are having on the industry.
What was the biggest concern among the respondents?
What we found is that 27.3% of the industry is profitable, and that was actually an improvement, year-over-year, from last year’s results, which were only 24.4%.
Although things are getting better, when you look at it from a U.S. Chamber of Commerce perspective on small businesses — they list 65.3% of businesses as profitable — it just shows you the impact that federal, state and local policies are having on the cannabis industry. It’s putting the industry under economic stress.
That stress is having these unintended consequences throughout the industry. It’s impacting a lot of the very policies that legislatures and regulators are trying to improve, like public safety and addressing and reducing the amount of illicit activity. It seems like the lack of profitability is actually having a negative effect. There’s an increase in illicit activities. There’s a greater public safety risk.
What we found — and it was pretty clear in the qualitative comments — was that something has to change. The status quo, from the regulatory perspective, that’s been going on for the last 10 years just isn’t cutting it, and because it isn’t cutting it, it’s putting people out of business.
And when you’re out of business in the cannabis industry, it’s different. It has a more profound effect, because you don’t have federal protections due it being Schedule I and the illegality of cannabis. So if you go out of business, then there’s no bankruptcy protection.
Failure in the cannabis industry is basically wealth destruction — personal wealth destruction. When Oregon had a collapse in prices from 2017 to 2018, the cost per pound, or per ounce, or per gram went below the production costs for cultivators. There was a significant spike in farmer suicides, because they didn’t feel like they had any other option. They lost their farms, they lost their houses, because of personal guarantees and predatory lending. They couldn’t cover their costs, and so they killed themselves. That’s the tragedy of the continuation of these policies. There’s a real human toll that is occurring. People don’t understand that. They just see cannabis as this cash machine for tax revenue or employment and job opportunities, but it stops there. They don’t think about the effects of their policies if they’re not geared towards the health and sustainability of their operators, if they don’t look at it from that lens, then this devastation occurs.
Wow. That’s kind of a dark outlook.
What’s really interesting though, is when we looked at the data, there was mostly optimism. I think part of that optimism was born from the fact that there’s potentiality of change. One of the questions was: “Are you going to get out in the next three to five years?” and over 50% — a clear majority of the respondents — said that they’re going to stay in it. So there’s this contrast: As much as it’s been devastating on communities and individuals in personal wealth destruction, people are sticking around and they’re optimistic on their views of the future. We haven’t been able to reconcile that. The only exception to what could be the reason for this optimism is the potentiality of change — federal reform. So although it sounds doom and gloom, the industry remains optimistic, and I found that to be one of the more fascinating, consequential findings in our business condition survey.