Page 36 - BusinessWest February 6, 2023

“Surviving the current market constriction and correction from the imbalance
of supply and demand — something that has happened in other markets that came online, though it arrived faster here in Massachusetts
— is a challenge of smart maneuvering and business forecasting.”
legal retail market. But ultimately, the ones that really come out ahead are those with a key differentiating advantage and a realistic, thoughtful approach to the business. Many small first-time opera- tors do not have the forward-looking business modeling abilities needed in the current market, especially when their average day-to- day will be spent just trying to stay afloat.
Smart Business Savvy Is the Key to Success
As experience has shown, the sky doesn’t fall in an existing mar- ket when competition is tight and the supply is in surplus, but busi- nesses do need to be responsible. For those that need a reminder, thanks to IRS Code 280E, the effective tax rate for cannabis com- panies is roughly 70%. Meanwhile, cannabis companies cannot deduct normal business expenditures. Our three biggest line items, in order, are inventory, payroll, and taxes (the statewide total collect- ed for 2022 was roughly $284 million, to paint the picture).
In some instances, the towns themselves are waking up to the runaway nature of the market glut. Last month, Northampton city councilors set a new limit on local cannabis dispensaries allowed to open (capped at 12 retail locations now) for a municipality noted for having the most licensed dispensaries in the state.
Even with our collective experience in retail cannabis operations and strategy, it’s still a massive challenge to make it work with so many ways our hands are tied or restricted compared to traditional industries. When the revenue numbers generated by legal cannabis in the state seem to defy the crunch-time feeling of the market, all businesses and consumers need to remember the lion’s share goes directly to the government instead of back to the business. That’s another reason why it’s important to be more careful than ever about how and where dollars are spent, and how we are utilizing the investor capital we raise for our ongoing expansion and scaling plans.
Best by Definition
Competition is already at a fever pitch in the state, and in canna-
bis, getting there first sometimes just makes you best by definition in the market’s eyes. At the retail level, look at any new cannabis state — say, New York — and what happens when the first stores open: lines around the block and product (or what variety there is at first) flying off shelves at steep prices that make investors smile and consumers wince. But when the market becomes more savvy and educated about the products and value system of a brand-new industry, first is no longer best.
As challenging as this time and sector is, it’s as important for the turbulent tenor of the day to subside as much as it is important for it to simply succeed at a functional level. In fact, it must succeed for the greater industry to thrive.
There is no shortage of stories about widespread layoffs and restructuring for asset consolidation on a large scale with bigger companies, primarily multi-state operators (MSOs). But in compari- son to the trials of new, very small operators that found it a matter of survival just to get to the doors-open phase, MSOs have it much easier. They can bleed money in a way small independent shops cannot. If they have operational experience already, they may still not have the ability to see the forest through the trees if they are not actively responding to the business climate of an ever-changing, statewide industry.
You will need more money — from either increased sales or investor dollars for market expansion. There will continually be massive restrictive aspects to operating as long as no new banking reform measures or full-scale legalization measures are enacted. So plan on enduring such aspects as much as you should plan to be noble and focus on what is a differentiating aspect of your business.
And don’t plan on having a future in the business until you get your business plan reflective of the industry we have versus the one we want. For those new or inexperienced operators that don’t get those lessons under their belt, theirs will be a back aching for the lash of “don’t say you weren’t warned.” BW
Meg Sanders is the CEO of Canna Provisions, which operates cannabis dispensaries in Holyoke and Lee.
36 FEBRUARY 6, 2023 << CANNABIS >>
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