It is no secret that the cannabis industry has been on a wild ride lately, especially in mature markets. Many operators are feeling the pressure, and they are not alone. Let us break down the current landscape, why it is tough out there, and how receiverships and distressed sales might actually be a positive move for struggling cannabis companies.
Many developed cannabis markets are facing serious challenges. Inflation and a shaky economy are making it harder for businesses to stay afloat (regardless of industry type), on top of market saturation that has caused cannabis prices to drop, and tight profit margins for businesses in the more established marijuana states. This is compounded with the harsh effects of tax burdens due to 280E—where cannabis companies are unable to deduct otherwise established business expenses from gross income as a result of the federal illegality of cannabis in the United States—and lack of liquidity from inability to access traditional debt financing and institutional equity markets. As a result, many cannabis companies are finding it difficult to pay their debts and keep the lights on. And because cannabis is still federally illegal in the United States, struggling cannabis operators are limited when it comes to utilizing federal bankruptcy mechanisms for relief.
But hope is not lost. Even in tough times, cannabis businesses along with their management, creditors, and investors, have found options to help their companies restructure and move forward. One of those is a state-level receivership.
To read the full post, please visit our Cannabis Industry Insights blog.
