Marijuana Business Factbook 2019

18 Marijuana Business Factbook 2019 Chapter 1 | National Trends © Copyright 2020, Marijuana Business Daily , a division of Anne Holland Ventures Inc. You may NOT copy this Factbook, or make public the data and facts contained herein, in part or in whole. For more copies or editorial permissions, contact CustomerService@MJBizDaily.com or call (720) 213-5992, ext. 1. As a whole, marijuana companies fared quite well in 2018. The only segment of the industry where more than half the companies indicated they were unprofitable was wholesale cultivation ― a sector that’s been slammed by rampant overproduction and plunging crop prices. Producers/processors ― which grow and manufacture cannabis products such as concentrates, vape pens and edibles ― fared slightly better than wholesale cultivators, though many of those businesses also sell cannabis to the wholesale market and have been subject to that segment’s adverse business conditions. Almost two-thirds of cannabis product manufacturers ― businesses that manufacture products but do not grow marijuana ― reported a break-even or profitable year in 2018. Though the manufactured cannabis product space is highly competitive, it is the primary source of growth for the marijuana industry. And businesses that can carve out their own niche with consumers and secure retail shelf space ― which is easier said than done ― can find success. A smaller percentage of vertically integrated retailers ― businesses that cultivate some or all the marijuana they sell in their retail stores or dispensaries and may or may not manufacture cannabis products ― indicated their businesses were profitable in 2018 relative to stand-alone retailers. This could be driven by a number of factors, including: • The level of difficulty that comes with managing a business operating in all three major segments of the cannabis industry ― cultivation, manufacturing and retail. • The fact that many vertically integrated businesses operate in tightly controlled medical markets ― such as Hawaii, Minnesota and New York ― where operating costs are high and patient counts have underwhelmed. • The proliferation of wholesale growers in recreational markets flooding the space with low-cost cannabis. Many wholesale growers produce cannabis at significantly lower costs than vertically integrated retailers are able to, negating the key advantage of controlling their own supply chains. The fortunes of ancillary services firms ― which include professions such as lawyers, consultants and security guards ― are intrinsically tied to the fortunes of the cannabis businesses they serve. It’s often the case that ancillary service providers serve clients in only one or two states, as the intricacies of each state’s cannabis market can make it difficult to operate on a national scale. But low overhead and operating expenses allowed a higher portion of ancillary service providers to report at least breaking even in 2018 compared to the businesses they serve. On the other hand, ancillary technology and products companies ― such as HVAC or lighting manufacturers ― often are able to provide products to cannabis businesses no matter what state or country they operate in. With the ability to serve clients in multiple locations comes more opportunity, leading nearly 90% of ancillary technology and products companies to report a successful year in 2018.