Millionaires Are Made
Cannabis Industry Update
The cannabis market is in a very unique place right now. As the industry matures, we expect the quality to improve while prices decrease due to technological advancements, regulation changes, and, most of all, economies of scale. As big companies buy out smaller ones, they are able to produce at lower prices per unit. In Colorado, a license and all the fees associated cover an entire location.
Therefore, it cuts down cost per unit if you have 100,000 square feet of grow space versus multiple 20,000 square feet warehouses.
There are some big players here in Denver (and Colorado in general as the largest cannabis purchase in history just happened), and they are strapped with cash. As an owner of one of the small fish in the sea, only 2 stores and 4 grows, we look to attract a big player to sell our company.
This year so far has been extremely slow for acquisitions. In 2020, the pandemic raised sales as people consumed far more cannabis. We enjoyed the year but watched as large grow operations were opened across the country. Towards the end of the year, mergers and acquisitions started up again.
In 2021, there was significant activity, and we had many potential buyers contact us. Sales were still strong, and the market only grew as tourism came back to pre-pandemic levels. Towards the middle of the year, we started seeing sales slumps. In fact, typically, Colorado goes nearly dry in August as consumption is so high and supply struggles to keep up. We find the highest prices here, before the outdoor grows hit the market. This did not happen in 2021. Fear came to many owners, and sales were the lowest during our high season since we opened Karmaceuticals in 2009.
As we met with industry owners, investors, and leaders, many theories came up to explain the worst high season to date. While the pandemic was often the main culprit, we couldn't help to see what was happening to big clients.
They were leaving due to regulations. Colorado had new laws coming into play that heavily affected the market. Many people left the state. Missouri and especially Oklahoma were starting to have been supplies with little to no regulation. Prices were much lower (and so was quality, obviously), but the sheer lack of monitoring and government oversight was attractive to many people.
As we pushed through a tough season, the winter (slow season) came and was even worse. Another wave of Covid hit Denver, mask mandates came back, and sales were low.
Fast forward to today. Covid is on the back of everyone's mind, but business is nearly (hopefully) back to pre-pandemic levels. February and March had just slightly below average sales. Buyers and investors are starting talks again. Tourism is growing, and cannabis tours are back up and running.
Sales look to be promising for the industry for 2022. We are optimistic, and each week, we get closer to pre-pandemic levels. As we are in the market to sell our business and its assets, we are seeing more and more talks of acquisitions. The buyers have definitely returned to the industry, and now may be the best time if basing value off of revenue as the last 8 months were some of the lowest for some stores.
The war in Europe doesn't seem to have affected cannabis too much. It also may be too early to tell. There are massive supply issues, but I attribute those to the pandemic as they have been issues for a while.
The market will be shrinking a good amount this year. I think investors know it's the best time to buy. Companies had slower sales, and the ones that made it through the last two years are built to withstand any future complications. I think if supply chains can improve, the Russian invasion ends soon, and COVID lockdowns remain at bay that this year will have the most mergers and acquisitions to date. I think there will be a flurry of activity. That being said, we are still growing and building to compete in the new post-pandemic market.
Therefore, it cuts down cost per unit if you have 100,000 square feet of grow space versus multiple 20,000 square feet warehouses.
There are some big players here in Denver (and Colorado in general as the largest cannabis purchase in history just happened), and they are strapped with cash. As an owner of one of the small fish in the sea, only 2 stores and 4 grows, we look to attract a big player to sell our company.
This year so far has been extremely slow for acquisitions. In 2020, the pandemic raised sales as people consumed far more cannabis. We enjoyed the year but watched as large grow operations were opened across the country. Towards the end of the year, mergers and acquisitions started up again.
In 2021, there was significant activity, and we had many potential buyers contact us. Sales were still strong, and the market only grew as tourism came back to pre-pandemic levels. Towards the middle of the year, we started seeing sales slumps. In fact, typically, Colorado goes nearly dry in August as consumption is so high and supply struggles to keep up. We find the highest prices here, before the outdoor grows hit the market. This did not happen in 2021. Fear came to many owners, and sales were the lowest during our high season since we opened Karmaceuticals in 2009.
As we met with industry owners, investors, and leaders, many theories came up to explain the worst high season to date. While the pandemic was often the main culprit, we couldn't help to see what was happening to big clients.
They were leaving due to regulations. Colorado had new laws coming into play that heavily affected the market. Many people left the state. Missouri and especially Oklahoma were starting to have been supplies with little to no regulation. Prices were much lower (and so was quality, obviously), but the sheer lack of monitoring and government oversight was attractive to many people.
As we pushed through a tough season, the winter (slow season) came and was even worse. Another wave of Covid hit Denver, mask mandates came back, and sales were low.
Fast forward to today. Covid is on the back of everyone's mind, but business is nearly (hopefully) back to pre-pandemic levels. February and March had just slightly below average sales. Buyers and investors are starting talks again. Tourism is growing, and cannabis tours are back up and running.
Sales look to be promising for the industry for 2022. We are optimistic, and each week, we get closer to pre-pandemic levels. As we are in the market to sell our business and its assets, we are seeing more and more talks of acquisitions. The buyers have definitely returned to the industry, and now may be the best time if basing value off of revenue as the last 8 months were some of the lowest for some stores.
The war in Europe doesn't seem to have affected cannabis too much. It also may be too early to tell. There are massive supply issues, but I attribute those to the pandemic as they have been issues for a while.
The market will be shrinking a good amount this year. I think investors know it's the best time to buy. Companies had slower sales, and the ones that made it through the last two years are built to withstand any future complications. I think if supply chains can improve, the Russian invasion ends soon, and COVID lockdowns remain at bay that this year will have the most mergers and acquisitions to date. I think there will be a flurry of activity. That being said, we are still growing and building to compete in the new post-pandemic market.
We at Karmaceuticals are currently building the 4th largest indoor grow in the state, and it has been nothing short of a very, very complicated process. Transformers were on a year waitlist. We nearly hired a team to build our own, then have the state inspect it to save time. All the other materials have been crazy and the project is barely following the timeline.
These types of difficulties will affect the M&A markets as projected sales projections will be inaccurate, and analyzing a company's value will prove more difficult. Regardless, there are plenty of sellers (us included!) and plenty of people ready to get in now.
These types of difficulties will affect the M&A markets as projected sales projections will be inaccurate, and analyzing a company's value will prove more difficult. Regardless, there are plenty of sellers (us included!) and plenty of people ready to get in now.
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