If Cannabis Is a $50 Billion Industry, Why Is Weedmaps Is Getting Stiffed by over 500 Clients?
Interesting article on Seeking Alpha that caught my eye and ties into the “the marijuana industry is dead” theme we are seeing around the cannabis space right now. While the world got excited by President Biden’s recent marijuana pardoning announcement, the devil is in the details as we pointed out in our instant analysis of the presidential action.
Donovan Jones of IPO Edge points out in Weedmaps’ latest public fillings that over 500 clients are now listed as “non-paying” or delinquent. While we at Cannabis.net pointed out the marijuana industry has a very serious problem because Delta-8 and 9 from hemp now get you seriously high, especially in liquid form, we were blasted by some people for that article. The criticism, was that how can the marijuana industry be dead when top line estimates for sales around the world have gone from $50 billion, to $60 billion to $84 billion by one analyst group? How can weed be dead already when the industry isn’t even legal in 80% of the world?
The difference we are talking about is revenue and profit, two very different numbers on a balance sheet. While top lines sales of the product may be going to the moon, or Mars if you are an Elon Musk fan, profit margins are collapsing at record pace for legal cannabis companies. Supply from the illicit, gray, black, and legal market is vastly out-stripping demand. (See Canada, California, and Colorado).
While you may see big headline numbers like $84 billion in sales or “what the marijuana industry is worth”, it does not mean there is $84 million in profits for everyone in the cannabis industry. Profit margins the different between what you charge and what your costs are, are shrinking fast. The state of the economy and inflation are also forcing consumers to pull back on their cannabis purchases as part of an overall austerity plan. If gas, meat, and consumer staples are all up by 20%, that may leave less money for discretionary things like movies, alcohol, and cannabis.
This leads me to the latest “canary in a coalmine” that proves our theory, Weedmaps, the most important websites in the world for the cannabis industry as it probably drives 75% of the customers a dispensary gets in month to their front door, is getting stiffed by over 500 clients. You could argue that Weedmaps is the absolute last vendor you want to stiff if you are a dispensary or delivery service, as they are your lifeline to new customers and sales. So, what does it mean now that over 500 clients are no paying for the service anymore? It means we have many, many cannabis businesses on their last breath and running on fumes.
If you don’t pay your main source of new leads and revenue, how bad is your business right now? You might as well throw in the towel if you can’t pay for listings that lead to new customers and return customers.
If you think things will get better with legalization, you are very wrong. Interstate commerce, a move to efficient markets, will crush margins for most states. High supply states like California, Colorado, and Oregon can flood low-supply states with products and flower. And that is just the beginning. When the US legalizes at the Federal level that will give the UN the okay to change the drug treaties that 163 counties are supposed to be abiding by when it comes to cannabis. We will then enter a new phase called a “global market” with future’s contracts trading and low-cost provider like Colombia, Brazil, Mexico, Thailand, Vietnam, Bangladesh, Pakistan flooding world markets with high-quality, low-cost cannabis. What happens when Colombia sends their $0.06 a gram production costs out to the open world market? We wrote there will be a time in 10 years where all the weed in edibles and vape cartridges in America won’t actually be grown in America.
So, yes, revenues are soaring, but profits are shrinking, and that trend shows no way of turning around with the current catalyst in the market.
MORE IN THE TRIALS OF WEEDMAPS, READ ON…
WITH THEIR STOCK DOWN 85%, IS WEEDMAPS LISTING ILLEGAL DISPENSARIES, AGAIN?