The cannabis industry has had its fair share of highs and lows over the last decade, as evidenced by patterns we’re seeing with some major players in the pot world. Take Curaleaf, for example, one of the largest dispensary operators in the United States. They recently decided to pull out of the most mature and well-established cannabis markets in the country – California, Colorado, and Oregon – and shortly after, had to fight to keep their license to sell recreational weed in New Jersey. What is going with Curaleaf? And what’s happening to the cannabis industry?
Who is Curaleaf?
Curaleaf is a well-known medical and recreational cannabis company in the United States, founded in 2010 and headquartered in Wakefield, Massachusetts. They operate a chain of dispensaries across 17 states (23 at one point), with hundreds of thousands of patients nationwide. Curaleaf is also publicly traded on the Canadian stock exchange (OTCQX: CURLF).
Their valuation has fluctuated quite a bit over the last few years, with their highest numbers in the first two quarters of 2021. However, it has been on the steady decline ever since with shares dropping to their lowest point (under $3) in March and April of this year.
Since January, Curaleaf has been trying to implement different measures to cut costs and get back in the black. These include mass layoffs (part of the reason they’re having issues in New Jersey), dispensary closures, a 10% payroll reduction across the board, and consolidating cultivation and processing operations in Massachusetts to a single facility in Webster.
“These adjustments were necessary for the future success and profitability of the business, and were made as a result of recent legislative decisions, price compression, and lack of enforcement of the illicit market,” the company said.
Why did they pull out of the West Coast markets?
In January, Curaleaf announced that they would be closing most of their dispensaries in California, Colorado, and Oregon as part of their “continued effort to streamline business operations.” As of now, they only have one remaining store open in Oregon (on Fremont Street in Portland), and none in California or Colorado.
Not only are they shuttering retail stores, but they are closing all production and cultivation facilities in those states as well – again, the only one left is in Massachusetts. Curaleaf cited a “difficult operating environment” in these states, due to massive oversupply of flower which has led to a dramatic drop in wholesale prices, and competition from the black market. These problems where present in all three states they plan on leaving. California is infamous for these issues, Colorado has seen prices plummet in the last few years, and Oregon is one of the most oversupplied markets in the country.
Company representatives state that they will “place a laser focus on cash generation in its core revenue-driving markets moving forward.” CEO Matt Darrin says Curaleaf will put greater efforts into expanding operations in newer markets across the US. “We’re seeing the growth opportunities and the greatest opportunities in markets that may not be the markets where some of that took place years ago. So as the industry matures, we are focused on the markets that are generating strong profits and are very stable markets.”
What happened in New Jersey?
Last week, it was announced that Curaleaf would be kicked out of New Jersey’s recreational cannabis market over “labor practices”. Basically what this means, is that NJ officials voted against renewing Curaleaf’s license to grow and sell weed because the company did not properly notify the state’s Cannabis Regulatory Commission about employee layoffs. The company was in the process of shutting down two of its NJ locations.
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But in an interesting change of heart, The Board of the New Jersey Cannabis Regulatory Commission (CRC) reversed course, and voted during an emergency meeting on Monday to reapprove Curaleaf’s adult-use recreational cannabis license renewal. So, their license that was set to expire on April 21st, will be reinstated, and their recreational stores in Bordentown, Bellmawr, and Edgewater Park can continue operations.
Curaleaf’s dispensaries have generated more than $5 million in tax revenue dollars for the state of New Jersey, according to the company’s chief compliance officer, James Shorris. He also added that the “company has bargained in good faith with New Jersey employees who have joined the United Food and Commercial Workers Local 360.”
That being said, the company has had a spotty record with labor issues in the past. Last year, the National Labor Relations Board issued a citation to Curaleaf for refusing to work out a deal with unionized workers in Chicago, Illinois and Phoenix, Arizona. Many states are implementing laws that require companies to bargain with employees if the majority of them want to discuss unionizing.
The future of cannabis
Although legalization is overall a good thing (people getting arrested for cannabis possession is ridiculous, I think we can all agree to that), the bottom line is, the industry is not generating nearly as much revenue as anticipated, and businesses are struggling. Pretty much everyone in the supply chain including cultivators, extractors, dispensary owners, and even those operating ancillary businesses like software and technology are feeling the pain of this stressed market.
But the problem is not demand, people are still buying weed in the same numbers, if not more so, than in years prior. There’s been a huge uptick in middle-aged to older Americans who use cannabis products as well. So it’s not that people are losing interest in weed, although the culture has changed dramatically; it’s because of numerous different elements that make it difficult for weed business to make a profit – mainly taxes and the still-thriving black market.
Cannabis businesses are notoriously overtaxed. Then factor in the many other costs and fees associated with operating a weed business, and it translates to higher prices for consumers. Higher than what they would find from a street dealer or unlicensed dispensary. And because these unregulated distributors have access to all the same products, sometimes better ones, than legal dispensaries, that makes for an extremely hostile and competitive environment for anyone trying to operate an above-board cannabis business.
The are quite a few other issues with today’s cannabis market, such as oversupply of flower – to the point that growers are having trouble selling off much of their stock, difficulty advertising on prominent search engines and social media sites, problems finding property and real estate for their business endeavors, banking/financing struggles, and the list goes on.
In response, big players in the industry are trying to cut costs in any way possible; from mass layoffs and salary cuts, to store closures, and even taking shortcuts on the production side of things. Investors are taking note as well, and they are growing increasingly reluctant to invest in cannabis-related enterprises. Summarized, the cannabis industry is not faring well at the moment, and these cost-cutting measures are likely to continue well into 2024.
Although we can’t base everything on one single company, the fact that they, and other big names in the industry are voluntarily backing out of the OG cannabis markets, is very telling. It tells us that if state governments don’t get a handle on the taxes and fees charged, and unnecessary hoops they make cannabis business owners jump through, the illegal market will continue to outpace the legal one.
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