Despite record highs in revenue for cannabis sales with projections set to double in the next two years, the industry itself is on the edge. Supply – which tends to be in the hands of small marijuana businesses – is simply not enough and could end up nipping the entire cannabis industry in the bud
Small businesses are the backbone of every major economy.
You’ve probably heard this or some form of it from every campaign speech, essay, or opening debate statement. Any budding industry relies on small businesses to propel growth and the marijuana industry is no different.
We are seeing record highs in revenue for cannabis sales with projections set to double in the next two years, but the industry itself is on the edge. While marketing is great and demand is ever-present and rising, the presence of supply – which tends to be in the hands of small marijuana businesses – is simply not enough- a trend that, if left unchecked, could end up nipping the entire cannabis industry in the bud. Here are some of the biggest small marijuana business challenges:
A House Divided
Let’s get this out of the way. Despite strides in acceptance, the fact remains that the United States, well actually, aren’t when it comes to the legal status of marijuana. At least not yet. This is a large hindrance towards getting unified policies in place to benefit the average small marijuana business owner. For example: at any single point in time, a marijuana producer must only produce as much as he thinks he can sell within his state – with no room for excess- because the export of cannabis to other states is prohibited. This not only stifles the market because states cannot help each other out in cases of overproduction in some and underproduction in others, but also indirectly tells small marijuana businesses to “plant something else” so they can maximize productivity.
Regulation, Licensing and the Taxman
Because there aren’t clear unified policies on this, regulation tends to err on the side of caution and be stringent. Each product requires stacks of documentation from the seed to the shelf that the average small marijuana businessman will likely not want to bother with, especially during a time when he is just starting the business.
And speaking of starting the business: licensing is a slow, expensive, painstaking process that could take somewhere from around six months to a year to approve (if it is even approved), and by that time would be due for a maintenance license. Why would small marijuana businesses wait? Why would small marijuana businesses even gamble that if in that span of time, new laws come in and invalidate their application?
And when the business does get going. Taxes on sales are absolutely crazy. Some cities apply as much as 40% – 45% in total (state sales taxes, marijuana excise taxes, wholesale taxes and local taxes).
Ready, willing, but not able…
Supposing the small marijuana businessman is up to this challenge and ready to face all odds. There is, of course, the matter of capital. Regulation, licensing, taxes, actual production, all these need to be paid. And while there are a number of ways to obtain funding for starting a small business, there is this: not all banks would consider a business loan for a small marijuana business venture, in fact, only a very small number of them will and you’d be lucky if you didn’t get asked to leave on the spot. Why? Again: no unified policies, big banks that operate in multiple states certainly wouldn’t want to have that headache.
But we’re not even getting to the biggest issue of a lack of startup capital: the technology. Any other legal agricultural product already has existing proven methods to maximize production from planting and harvesting automation to pest control. The marijuana business, being new, naturally has a few bugs to iron out to truly bring out maximum yields. Research, development and construction of these new technologies are expensive, placing them beyond the reach of small marijuana businessmen – especially after all those regulation, licensing, tax and production costs.
David vs. Goliath/s
Because of the all these challenges, big corporations will tend to dominate the market and push small marijuana businesses out. What’s wrong with that? Big businesses are ready, willing, able and utterly ruthless. The eventual loss of competition will lead to monopolies, then to stagnation and finally, a hostile market situation. And before long Big Weed will be just like Big Tobacco and Big Pharma.
We’re a long way from that happening, but it is going to happen if things go the way they’re going now. What we need right now is a stronger push for uniform, mutually beneficial state laws in support of small marijuana businesses. It starts with that.
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