Get ready for an exciting year ahead in the cannabis industry! As 2024 approaches, industry executives are sharing their predictions for what’s to come. With the potential for federal reform, including the rescheduling of cannabis and the closure of the Farm Bill loophole, there is anticipation for a new wave of liquidity and increased M&A activity. Internationally, Germany is also making strides towards legalization, which could make it the largest market for adult cannabis. However, amidst the opportunities, there are still challenges to overcome, such as taxation issues in California and obstacles in establishing a functional adult-use market in New York. Despite these hurdles, executives are looking forward to the next 12 months, aiming to strengthen their operations and drive growth that generates cash flow. So buckle up, because 2024 promises to be a thrilling year for the cannabis industry.
Federal reclassification of cannabis
In the United States, there is anticipation for the federal reclassification of cannabis in 2024. The U.S. Department of Health and Human Services formally recommended rescheduling cannabis in August, and many industry experts predict that it will be reclassified as a Schedule III controlled substance on April 20, 2024. This reclassification could have a significant impact on the cannabis industry, as it would bring in a new wave of liquidity and potentially lead to a surge in mergers and acquisitions (M&A) activity. Operators and observers are hopeful that this reform will create more stability and growth opportunities in the industry.
Impact on liquidity and M&A activity
The potential reclassification of cannabis as a Schedule III controlled substance could have a profound impact on the liquidity and M&A activity within the industry. Morgan Paxhia, co-founder and managing director of Poseidon Investment Management, believes that this move could usher in a new wave of liquidity and stimulate a surge in M&A activity. The increased liquidity would provide companies with more capital to invest in expansion and innovation, while the rise in M&A activity could lead to consolidation and stronger market players. Overall, the federal reclassification of cannabis has the potential to reshape the industry landscape and drive further growth.
Reforming hemp-derived THC products
Another aspect of U.S. reform in 2024 is the focus on reforming hemp-derived THC products. Paxhia predicts that these products, along with other naturally occurring intoxicating hemp-derived cannabinoids, will be forced into regulated channels to close the Farm Bill loophole. This reform aims to ensure that all cannabis products, regardless of their source or form, are subject to proper regulations and oversight. By bringing these products under stricter regulations, the industry can enhance consumer safety and confidence in the market.
SAFER Banking Act progress
While there are expectations for various reforms in the cannabis industry, the progress on the SAFER Banking Act is uncertain. Paxhia believes that instead of progress on the act, a Garland Memo-like protection will be introduced alongside Schedule III. This response is anticipated due to the Boise Schiller Flexnor lawsuit against Attorney General Merrick Garland on behalf of several cannabis companies. Despite the potential lack of progress on the SAFER Banking Act, the industry remains enthusiastic about future developments and recognizes the need for comprehensive federal banking reform to support cannabis businesses.
Legalization in Germany
Germany, one of the leading European markets for cannabis, is expected to make significant strides in legalization in 2024. Lewis Koski, chief strategy officer of Metrc, predicts that Germany will become the largest market for adult cannabis with the passage of its decriminalization bill. While the country faced some setbacks in 2023, Koski is optimistic that Germany will take material steps towards providing commercialized cannabis to adult consumers. The legalization in Germany is seen as a promising opportunity for international cannabis companies and further legitimizes the industry on a global scale.
Steps towards providing commercialized cannabis
In addition to Germany’s legalization efforts, the country is also set to implement regional model projects in 2024. These projects aim to explore different approaches to the sale and distribution of cannabis and will serve as a testing ground for potential future regulations. The regional model projects are an essential step towards establishing a well-regulated and commercialized cannabis market in Germany. By gathering data and insights from these projects, policymakers and industry stakeholders can make informed decisions on how to shape the market effectively.
Regional model projects
Germany’s regional model projects will not only impact the domestic market but also have implications for the global cannabis industry. The outcomes and lessons learned from these projects can serve as valuable guidance for other countries and regions looking to develop their own cannabis markets. The success of these projects has the potential to influence international cannabis policies and create opportunities for businesses to expand their operations into new markets. As Germany leads the way in cannabis reform, it sets a precedent for other countries to follow suit.
A Return to Expansion
Potential for more states to legalize cannabis
With 2024 being a presidential year in the United States, cannabis industry experts believe there is potential for more states to legalize cannabis. Lewis Koski highlights that presidential years have historically been favorable for the expansion of cannabis legalization within states. As states allow the electorate to make the call on legalization, there is a possibility for more states to put legalization on the ballot during this time. This potential expansion opens up new markets for the industry and can lead to positive economic impacts, including job creation and increased tax revenue.
Positive economic impact for the industry
The legalization of cannabis in more states can have a significant positive economic impact for the industry as a whole. As new markets, such as Ohio, come online and existing medical markets, like Pennsylvania and Florida, consider embracing adult use, multistate operators may become more aggressive in their expansion. This expansion can stimulate economic growth, create employment opportunities, and generate tax revenue for both state and local governments. The cannabis industry has shown resilience and adaptability, and as it continues to expand, it has the potential to contribute further to the overall economy.
Challenges in California and New York
Despite the overall optimism for the cannabis industry, there are still significant challenges that operators need to address in 2024. California, one of the largest cannabis markets, continues to present challenges for businesses. Taxation is a major issue in the state, and operators are struggling to navigate the complex tax landscape. Similarly, New York is facing hurdles in getting its adult-use market functional due to lawsuits and injunctions. Resolving these challenges will require cooperation between regulators, operators, and stakeholders to create a more conducive business environment.
Focus on financial health and efficiency
To thrive in the competitive cannabis industry, operators need to focus on their financial health and efficiency. David Goubert, president and CEO of Ayr Wellness, emphasizes the importance of prioritizing cash flow generation and fostering leaner, more efficient operations. By streamlining their operations and finding ways to minimize costs, cannabis companies can improve their financial stability and position themselves for growth. This focus on financial health will help businesses weather any potential challenges and capitalize on new opportunities as they arise.
Strengthening operational foundation
Another key aspect for businesses in 2024 is strengthening their operational foundation. With the industry becoming increasingly regulated, operators need to ensure that their businesses are compliant with all relevant regulations. This includes implementing robust quality control measures, establishing strong supply chain networks, and investing in technology solutions that can enhance operational efficiency. By building a solid operational foundation, cannabis companies can navigate the evolving regulatory landscape and establish themselves as industry leaders.
Optimism for the Future
Long-term strategy for growth
Looking ahead, cannabis executives are optimistic about the future and have long-term strategies for growth. Ben Kovler, CEO of Green Thumb Industries, highlights the importance of creating brands and products that resonate with consumers. By understanding consumer preferences and trends, businesses can develop innovative products that capture market share. Additionally, executives stress the importance of disciplined capital allocation and driving growth that generates cash flow. Having a long-term strategy in place positions companies to make strategic investments and drive sustainable growth in the coming years.
Investing in brands and products
Innovation and brand development are critical components of growth in the cannabis industry. As the market becomes more competitive, companies need to invest in creating unique and differentiated brands that appeal to consumers. This involves conducting market research, understanding consumer preferences, and leveraging creative marketing strategies. By investing in brands and products, cannabis companies can build strong brand loyalty and establish themselves as leaders in the market.
Driving cash flow and capital allocation
Cash flow and capital allocation are essential for sustainable growth and long-term success in the cannabis industry. By prioritizing cash flow generation, companies can ensure they have the necessary funds to invest in expansion, research, and development. Effective capital allocation involves making strategic investments in areas that will drive growth and generate a positive return on investment. By driving cash flow and smart capital allocation, cannabis companies can position themselves for continued success in an evolving industry.
In conclusion, 2024 presents both opportunities and challenges for the cannabis industry. With anticipated federal reclassification in the U.S., international legalization efforts, potential state expansions, and a focus on financial health and operational efficiency, the industry is poised for growth. Despite challenges in key markets like California and New York, cannabis executives remain optimistic about the future and are committed to long-term strategies for growth. By investing in brands and products, driving cash flow, and strengthening operational foundations, cannabis companies can navigate the evolving landscape and capitalize on the immense potential of the industry.