The past couple of years have been rough on America’s state-level cannabis industry. Cannabis businesses enjoyed healthy demand during the COVID-19 pandemic, particularly in states where cannabis was deemed an essential product, but the industry has been plagued with market oversaturation, low prices, and increasing black market competition in the years since.
Investors have been especially wary of putting their funds into the industry, even with a Democratic president at the helm, and could be even more unwilling to invest in the sector under a second Trump presidency. The period of post-pandemic purchasing that was characterized by unusually high demand has run its course and demand has become easier to predict as customers go back to pre-pandemic purchase behavior.
Input costs will undoubtedly impact the segment in 2025. After being forced to dig deeper into their pockets to deal with higher input costs, many cannabis firms have increased efficiency and leveraged delivery services such as curbside pickups that led to higher revenues per employee. Many firms have also found various ways to cut their costs to adapt to a 10-month cash-flow period designed to deal with the sector’s history of delinquent payments.
Price compression will also increase the need for higher efficiency and fiscal discipline in 2025 and beyond. Cannabis prices will normalize as more states regulate marijuana programs until they eventually converge, making efficiency and fiscal discipline even more crucial. Cannabis players who learn how to do ‘more with less’ are the ones who will come out on top.
Marijuana firms may finally have access to low-cost capital in 2025. Several consecutive benchmark interest rate hikes by the U.S. Federal Reserve left marijuana operators dealing with significantly higher capital costs and many of them struggled to attract the capital they needed to maintain their operations and grow. High rates of up to 30% were common for those operators that chose to use debt financing.
The result was poor growth in new markets that tried to prop up small businesses with limited capital access as well as delayed cannabis businesses and store openings. Fewer open stores limited the number of customers engaging with regulated cannabis markets and reduced the overall revenue businesses and states could have generated from cannabis sales.
With interest rates projected to fall through 2024 and 2025, cannabis operators could finally access low-interest debt to further their business objectives. Low interest rates will also benefit businesses by reducing rates on credit cards and making it cheaper for consumers to buy products on credit.
Established firms like Green Thumb Industries Inc. (CSE: GTII) (OTCQX: GTBIF) may already have their own plans for navigating any regulatory or market conditions that emerge as the new year unfolds. Those strategies will then be tweaked to accommodate the specifics of any situation that arises.
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