Is the Cannabis Business Boom a Bust

Folks rejoiced with the news that weed would become legal and business started to boom. Then came hefty regulations in the state of California, who recently suspended cannabis licenses for nearly 400 companies for failure to comply. The city of Los Angeles just suspended their latest round of licensing due to glitches. Now cannabis companies are downsizing.

MedMen has announced it will shrink 20% of its workforce, which equates to 190 job losses. Shares have lost 2/3 of their value since the top of 2019.

Related: MedMen cuts 190 jobs, sells assets as pot firms come down off an expansion high

“The last industry chapter was defined by growth at all costs then capital markets have been closed, now businesses have to be self sustaining.”

MedMen Chief Executive Officer Adam Bierman

Ontario, Canada-based Canopy Growth Corp. announced revenue that fell short of the lowest Wall Street estimate and a loss that one analyst called “astounding.” That sent shares to their lowest price since December 2017. It’s still the largest pot company in the world, but at $7.1 billion Canadian, its market value is just a sliver of the $24 billion it reached in April.

“In almost every other industry, people can make relative-value judgments,” Jeff Solomon, CEO of Cowen, said at his firm’s cannabis conference in Boston last week. “In this industry they’re like, ‘Well, it’s not really a matter of price, it’s a matter of whether or not I should even get involved.’”

That’s raised fears that many companies will go bankrupt before financing becomes available. It’s already happening to Canada’s DionyMed Brands Inc., which filed for receivership last month.

Black market cannabis businesses will also take a hit as police raids continue to seize product and cash making it nearly impossible to stockpile cash for expansion and maintaining product on the shelves.