Because of the rapidly evolving legal and regulatory environment at the federal and state levels, barriers to entry play a huge factor in the cannabis industry.
Regulations can control the number and size of cultivation operations, limit the number of retail outlets, control where firms can or can’t operate and decree how vertically integrated a firm can or must be.
High barriers to entry can lead to:
- Lower competitive conflict.
- Less competitor entry and exit from the sector.
- Pricing power.
- Higher profit margins.
- Lower ongoing capital-expenditure requirements.
- Myriad other factors that are key to defining the risk and opportunity of an investment.
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