I’m not here to scare you, but it’s time someone speaks about what can happen if we continue on this current path. In the cannabis industry, the rules feel as if they are constantly changing. While being in as many states as possible used to be the metric for success, the industry is now facing a new metric: survival. The cannabis industry faces challenges that could potentially result in the collapse of many businesses. These are established businesses and well-known operators. And no, it’s not just operators that were bad managers of capital or others that couldn’t build a sustainable business model. These are businesses that are sustainable and successful by usual evaluation standards but face a variable that is impossible to account for: a chain reaction of broken links.

If a chain breaks, it could have a trickle-down effect altering even the most established players who are not struggling. Luck is about to play a significant role in determining which companies will survive, and here’s why.

The cannabis industry is a complex web of interconnected players, from growers and manufacturers to distributors and retailers. The success of any one company depends on various factors, including product market fit, successful acquisition and delivery of products and services, and, most importantly, payment for their efforts.

When one link in the chain breaks down, it can significantly impact the rest of the industry. For example, suppose a major distributor goes bankrupt. In that case, it could cause a ripple effect throughout the industry, resulting in manufacturers and retailers being left without a reliable source of products or compensation for their efforts. This is just a simple example to demonstrate the wider impact of one company’s failure.

This is particularly concerning for many reasons. The most critical one is that this industry lacks access to capital. Access to capital is usually a safety net to handle turbulence, such as a vendor defaulting on payment. This is even more concerning for companies with viable business models and consistent revenue. These companies may have done everything right to build their business and generate profits, but if the industry chains break down, they could still be at risk of going under.

Still not convinced? Look at this headline.

According to MJBizDaily:

“Track-and-trace software provider Metrc is threatening to shut down the accounts of more than 100 Michigan cannabis companies over missed monthly payments, creating turmoil in the roughly $2 billion market.”

This is just the tip of the iceberg. Let’s break down this example further. (By the way, our episode with Michael Johnson, CEO of Metrc, is live, and it’s a great one, so go check it out. Now, back to our example.) Operators decide to not pay Metrc. Metrc shuts off access. Companies can’t sell products. Metrc can’t afford to operate its track-and-trace software. Other companies that are not involved in this immediate issue experience a trickle-down effect, being hurt or disrupted by these efforts. This is just one example of a massive problem that is brewing and will, unfortunately, erupt somewhere.

Silicon Valley Bank is a potential example. For those who are unfamiliar with this, it’s worth a quick Google search to understand the implications of how when one company makes a mistake or has an issue, several others in the chain are affected. Causalities are an unfortunate reality, and no, it’s not just related to the tech and start-up industry.

One of the biggest challenges facing the cannabis industry is financial. Due to the federal prohibition of cannabis, many banks are reluctant to work with cannabis companies. This makes it difficult for companies to secure loans and investments, resulting in high fees and limited access to financial services.

The industry, money-wise, is broken, with many companies struggling to generate consistent revenue and maintain profitability. This is partly due to the earliness of the market, the unique legal status of cannabis, and banking issues. The variability and fluctuations, as we have seen in the pricing of cannabis, lead to countless unknowns. Today, you can sell your product with a margin. Tomorrow, you may need to sell it at a loss. How do companies make sound financial decisions when the most critical aspects of their business are fluctuating and unknown?

In a highly competitive market, companies must make strategic choices about everything from product offerings to distribution channels to which vendors they have to pay first. These decisions, while self-serving, have an ongoing ripple effect on the chain. Smaller operators in the cannabis industry are particularly vulnerable to these challenges. They often need resources to make payroll, and without financial backing, it may make it difficult for them to survive any speed bumps.

The state of the cannabis industry is concerning, with many companies facing financial challenges and uncertainty. Even the most well-off companies are potentially at risk of a domino effect. Survival depends on preserving capital and overcoming the challenges the industry chains face.

The impact of industry chain failures can be felt at every level of the industry.
Growers who have invested heavily in their crops may not get paid for their crops.
Manufacturers who have built a successful brand could be left without payment for their products.

Retailers who have established a loyal customer base could be left with less product on their shelves.

The cannabis industry is unfair, and luck plays a significant role in determining which companies will survive. As the industry continues evolving, companies must remain agile and be prepared for potential industry chain failures. “Success” is now “survival.”

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On how data-based evidence is beneficial for the cannabis industry for changing minds

The language of data gets everybody excited. I love when a client comes back and asks 10,000 questions that we don’t know the answer to because, to get to those questions, we must answer 1,000,000 questions that nobody else could answer.

What the international cannabis landscape will look like in 5 years

I think, in five years, shipping cannabis across the world will probably be a little bit hard. I think every country will want to have its own product, and they will probably try to make it more difficult to get products cheaper from outside. And I say that because I am thinking about Mexico and Brazil.

Absolutely nothing—because we don’t operate the businesses [that are] based on assumptions of regulatory moves. There were operators that were like, “We need Safe to pass because if Safe [Banking] doesn’t pass, the lights are going to turn off here very quickly.” So, that’s the sad reality of the business—that Safe has always been characterized as catering to the Tier Ones, giving us access to capital and uplifting, and there’s going to be just domination in the market.

Aaron Miles, Chief Investment Officer at Verano

How 280E continues to be the biggest hindrance to cannabis operators

280E, I think, is the biggest opportunity for the space because I don’t think people truly understand what paying taxes off the gross profit line looks like for the business. 280E is amazing to me when there are all these anti-money laundering concerns, and we’ve got to be careful because it’s cannabis, but you’re going to overtax us, and you’re going to take those same dollars that you’re concerned about.

Dime

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8th Revolutions April 2023 Cannabinoid Playbook – 11

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Our observations of the wholesale cannabinoid market in the U.S. region demonstrate a mixed trend in pricing across different months. This analysis focuses on the monthly percent change in the wholesale pricing data from January 2022 to April 2023. Delta-9 THC (Hemp Derived) Distillate witnessed a decline of 15% in pricing from February to March 2023, dropping from $1,900.00 to $1,150.00 per kilogram. Delta-8 THC Distillate also experienced a 15% decrease in pricing, moving from $617.86 to $525.00 per kilogram. Delta-10 THC Distillate saw a marginal decline of 1% in pricing from February to March 2023, decreasing from $1,450.00 to $1,433.33 per kilogram. CBD Isolate experienced a 15% increase in price, rising from $356.00 to $461.67 per kilogram. CBDA Isolate demonstrated an 8% increase in pricing, moving from $1,733.33 to $1,950.00 per kilogram. CBN-O Distillate pricing remained stable at $2,750.00 per kilogram. CBN Isolate witnessed a 26% increase in pricing, moving from $2,025.00 to $2,560.00 per kilogram. CBDV Distillate had a 27% increase in pricing, from $2,100.00 to $2,666.67 per kilogram. CBGA Isolate experienced a 6% decline in pricing, decreasing from $2,162.50 to $2,025.00 per kilogram. HHC Acetate Distillate observed a 4% price increase, from $849.60 to $882.67 per kilogram. Lastly, THC-O Acetate Distillate saw a 2% decline in pricing, decreasing from $815.00 to $800.00 per kilogram.

The wholesale pricing data for various cannabinoids in the U.S. region from January 2022 to April 2023 displayed diverse trends. While some products experienced price increases (CBD Isolate, CBDA Isolate, CBN Isolate, and CBDV Distillate), others witnessed price decreases (Delta-9 THC Distillate, Delta-8 THC Distillate, Delta-10 THC Distillate, and CBGA Isolate), and a few remained stable (CBN-O Distillate). When analyzing these pricing trends, it is essential to consider multiple factors, including market demand, regulatory changes, and production costs. The data reveals that the market for cannabinoids is in constant flux, making it essential for businesses to keep a close eye on industry trends and adjust their strategies accordingly.

*Disclaimer some of the text from this analysis was generated with an AI system.

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In this month’s playbook, we expand on the application of Process Analytical Technology (PAT) in the cannabis product formulation industry. We will delve deeper into advanced PAT applications that optimize the manufacturing process for vape pens, terpene purification, and edible dose monitoring. We will also explore the potential benefits of integrating PAT with data analytics and automation technologies to enhance process efficiency and product consistency.

Advanced Vape Pen Formulation

To further optimize the vape pen formulation process, incorporating Raman spectroscopy can provide valuable information on the molecular structure of the cannabis extract, carrier oil, and terpenes. This additional data enables manufacturers to fine-tune the formulation for optimal viscosity, stability, and bioavailability. Additionally, integrating PAT data with advanced process control (APC) software allows for real-time, automated adjustments during the formulation process, ensuring a more accurate and consistent final product.

Enhanced Terpene Purification

In addition to the PAT technologies mentioned last month, supercritical fluid chromatography (SFC) can be employed to further optimize terpene purification. SFC provides superior selectivity and efficiency in separating terpenes, enabling the isolation of target compounds with minimal degradation. Coupling SFC with mass spectrometry (MS) allows for real-time terpene purity and concentration analysis, providing valuable feedback for process optimization.

Advanced Edible Dose Monitoring

High-performance liquid chromatography (HPLC) can be integrated into the manufacturing process to further enhance edible dose monitoring. HPLC provides a more precise quantification of cannabinoids in the final product, ensuring a consistent dose. Combining HPLC data with advanced statistical process control (SPC) software allows manufacturers to identify and correct any deviations in the manufacturing process.

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For all our grumbling about the US cannabis market, Spain has little to recommend itself at this point in time. Spain grows a lot of cannabis, over 23k kilos last year, with a similar number expected this year. However, 81% is destined for export with the remainder used for research or production of two pharmaceutical products approved for prescription.

Access to medical cannabis for Spanish patients is currently severely limited. That will change soon. The Spanish health authorities are two months late in approving the regulatory framework requested by the Health Commission of the Congress for setting up regulated medical access to cannabis for its citizens. The regulations are expected soon and would begin life as a stricter version of Germany’s medical cannabis program. Legal recreational cannabis seems far off after being voted down in the Spanish parliament’s major parties.The status of consumable CBD and seed sales also unclear although readily available in stores and online.

But one shining diamond in the rough where Spain currently outpaces the US can be found in their non-profit cannabis clubs’ model. After attending ICBC’s business conference and the three-day cannabis consumer festival ‘Spannabis’ myself and colleagues would head to downtown Barcelona for amazing food on a terrace and a trip to one of the hundreds of cannabis clubs located in the iconic city. The clubs are structured as non-profit social and recreational organizations. Only members can enter and purchase and consume cannabis. The clubs have the support of the local government but not the federal government.Clubs remain in a legal grey zone even as they grow in popularity in cities like Barcelona and Valencia and tourism destinations like Ibiza.

At Choko in downtown Barcelona I prefilled my membership online the day before. When I arrived was verified, paid my annual membership fee of ~$40 and given a membership card that I could add money on to spend inside the club all all items for sale. Within the club you could buy alcohol, drinks, snacks and cannabis. God forbid, you could even get pre-rolls with 25% tobacco mixed in. The environment was dark and intimate. Tasteful local art was showcased on the wall. A live DJ mixed a tribal house set at a volume where you could still talk to the people near you.

The sitting encouraged interaction with others at large tables and circular shaped clusters of couches and comfy chairs. The prices for cannabis and everything else was ultra-affordable. The cannabis counter featured a selection of 12 types of quality flower as well as some limited selections of hash, concentrates and vape cartridges. The pace was relaxed, there was no pressure to keep spending money, the setting was hip but not overdone.

Why is the US cannabis consumption lounge so far from this excellent model? The primary factor is the supremacy of grey market operators, unimpeded by laws and regulations, who can set up a premise that understands and meets its club member’s desire. Mixing alcohol and cannabis? No problem.Tobacco mixed into pre-rolls? Why not? Reasonable prices with no pressure to keep buying products? Yes, no problem.

At the beginning of adult rec. cannabis markets like Colorado and Washington coming online myself and many others thought that social consumption lounges would be one of the easier problems to solve. Mix using and buying cannabis with food, beer and wine, community, and a nice vibe to relax. Sure, tobacco is never going to be disallowed in the US and there would be restrictions: zoning, limits on amount of alcohol (beer and wine only) and cannabis sold. But as they say, it’s not rocket science. Lounges remain for the most part illegal, controversial or sterile where they do exist and have yet to catch on it popularity.

We see the same dynamic in place in New York City right now with illegal dispensaries providing what consumers want at a reasonable price. If any city will lead the way on consumption lounges in the US it will be Las Vegas. A city always in tune with providing what tourists and consumers want with profit in mind will see the first lounges open later this year.

Marc Brandl resides in Brussels and is a Research Analyst at Arcview Consulting. Marc publishes his own newsletter on LinkedIn and substack, ‘Cannabis Space’

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