Croptober is here, economic headwinds are looming — so what’s a cannabis business to do?
Chances are you’ve heard about a potential economic downturn by now. For a variety of reasons far beyond LeafLink’s (or my) control, the economy seems like it could be headed for a downward period in the upcoming weeks, months, or years (depending on who you talk to.)
Yet regardless of your thoughts on the economy, setting your business up to be more efficient and cost-effective is never going to hurt you in the long term. Especially with Croptober here, which has historically led to lower prices in the best of times.
Economic shifts impact every industry, cannabis included
First, let’s think about how shifts in the overall economy have impacted cannabis in the past. It’s challenging because of how young the legal cannabis industry is, but economists are analyzing certain indicators to predict how the industry will react to economic shifts in the future. The easiest example to look at is the recession caused by the pandemic.
“Marijuana companies weathered the 2020 coronavirus-induced recession relatively well, with sales booming thanks to federal stimulus checks and anxious consumers turning to cannabis for stress relief,” MJBizDaily shared in August.
Yet those same factors may not necessarily be at play in the next recession. And as inflation has run rampant in consumer goods, cannabis prices have been decreasing — for a while. Cannabis businesses are spending more money than ever on labor, equipment, storage, and more while profit margins are getting smaller by the day.
Consumers also have less spending power than before (with inflation and the lack of continued government stimulus dealing a double whammy.) This can impact spending habits, with more budget-friendly brands gaining sales while premium products become less popular. Sales overall are likely to be down, which was already expected with the majority of the country returning (or more closely approaching) normal, pre-pandemic life.
As industries like alcohol and tobacco have shown steady demand during a recession, we can have some degree of confidence that the industry will prevail through almost anything. But as prices continue to decrease in cannabis and costs grow with inflation, less efficient businesses are going to get caught in the whirlpool as their savvier competition either quickly expands or gets bought out by a bigger fish.
One big question that people are having when it comes to cannabis is, why aren’t prices increasing at the consumer level? Everything else is more expensive today than it was before, so why not cannabis as well? The answer lies in a complex interplay of state-level dynamics, as cannabis remains federally illegal.
“In a quickly growing industry such as cannabis, it makes sense that many entities would want to try to capitalize,” says EisnerAmper. “However, this has proven to be a detriment as supply now outweighs demand and producers are lowering the sale prices just to compete.”
How to survive a recession as a cannabis business
Enough about the history and theory — let’s get down to business. Your business, and how you can survive the next recession, and the next, and the one after that even.
Whether prices and consumer spending continue to decline, whether cannabis is still federally illegal 10 years from now, whether the world throws anything your way, you can position your business today to make for the long run.
The economic downturn is already impacting the industry significantly, and it starts with businesses trying to cut costs and become more efficient. Especially for smaller businesses, innovation and finding new ways to do the same (or more) things for less is crucial right now if you want to keep up with the competition.
Streamlining your operations and cutting costs has to be priority number one if it isn’t already. It’s time to get lean, to find ways to work smarter, and to free up cash flow for where it’s needed most. This is true whether you’re in a very established market, or one that legalized like, yesterday. Or was that Tuesday?
Freeing up cash flow is underselling the value. As many banks and other financial institutions don’t want to work with our industry, it’s probably hard for you to access capital to expand your business. Especially when belts are already tightening across the board. That’s why LeafLink is committed to developing payments solutions that enable growth.
It’s not just about cash flow and payments
But improving your margins with technology doesn’t just come on the payments front. There are a lot of opportunities to streamline your supply chain operations as well, and LeafLink can help. LeafLink Logistics is our solution to the supply chain challenges wholesale buyers and sellers face across the industry. This includes Brand and Retailer Fulfillment, which is available now in California, Michigan, and Oregon with additional markets coming online over the next year.
“Companies have been streamlining their supply chain operations, negotiating better prices for larger orders and ordering select products that customers are using,” EisnerAmper shared. “Retailers are saving on shipping costs that are greatly impacting other industries. This has limited the variety of products available at many retailers but has allowed them to maintain current prices.”
To ride out this storm, you’re going to want to adapt with technology. Every business needs a cheat code to help streamline their operations, and that’s why LeafLink is here.
Download our new guide, Survive and thrive in an economic downturn to learn how we can help your business save time and money while making your customers happier than ever.
So what’s next for the cannabis industry?
Yes, consumer spending (and dispensary sales with it) have been declining and prices are shrinking accordingly. Yes, more people are trying to profit off of the legal cannabis industry than ever, including suppliers — leading to supply outweighing demand. And yes, traditional market competition is driving prices down even further, and doesn’t seem to be going anywhere fast.
The fact is, you’re trying to succeed in this challenging industry at a particularly difficult time. Hopes of federal legalization seem far dimmer than they did back in 2017 or 2018, and way dimmer than after the 2020 election when cannabis stocks hit a new high on hopes for change with a Democrat-led government on the way.
While the industry has shown resilience during COVID-19, past performance is no guarantee of future results. All we can do as an industry is get leaner, get smarter, and focus efforts on where they matter most.
This is a core part of LeafLink’s mission, and it’s why we’re always working to give you the most value for the lowest possible price. Because when you win, we all win — and the industry’s future will be bright, so long as we work together to embrace innovation through the thick times and the thin.
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