CHICAGO – After a year that saw 18 states approve adult-use cannabis along with strong federal efforts for safe banking and decriminalization, 2022 has the potential to be a breakthrough year in cannabis. And while the momentum has continued to advance the industry through leadership at the state level, the sector will continue to struggle with growing pains surrounding regulation and access to capital will continue to hamstring small- to medium-sized businesses, said Joe Caltabiano, CEO of Choice Consolidation Corp.
Competition, increased access will define cannabis in 2022 Greater access along with increased competition will apply even more intense downward pressure in 2022, forcing price compression to compete for consumers. This will be good news for consumers and ultimately great news for the industry, as lower prices and greater access enable more people to get the product while eschewing the illicit market. A casualty of price compression will likely include continued layoffs as businesses work to improve their bottom lines. However, these employee shifts will be more about companies making corrections.
“The cream will rise to the top in 2022,” Caltabiano said. “Overall we expect job growth to be incredibly robust next year with more states coming online and more businesses really raising operational standards across the industry. But the days of $75 eighth are fading and companies must learn to operate in the new reality. This is ultimately great for the industry because the smaller the price spread between the legal and illicit market, the more the industry can capture funds diverted from the illicit market run by criminal elements.”
According to Caltabiano, those cannabis companies that can achieve lean and nimble operations will be in the best position to grab market share and align themselves for acquisition targets. As co-founder of Cresco Labs, Caltabiano grew the company from a start-up to a Multi-state Operator with annualized revenue over $250 million. Today he is leveraging his expertise in his new role as CEO of Choice Consolidation Corp., a special purpose acquisition company (SPAC) he is building from the ground up to meet the current challenges of the maturing cannabis space.
“Choice Consolidation Corp. will deSPAC to become a lean, third-generation cannabis business that is focused on efficiencies and an ability to take advantage of the lessons learned over the past decade,” he said.
“We will not have inflated SG&A expenses, and that is what is needed in the current environment for any cannabis business to thrive.”
State markets will continue to lead on industry-defining issues
Increased consumer spending, spurred by the strength of new cannabis beverages and ongoing popularity of edibles, will create a strong retail start to the new year. Highly localized single-state operators with a laser focus on their local market, employees, culture and consumers will continue to set industry brand standards for excellence and service. This well-established approach has been utilized successfully for generations of retailers. Yet larger companies often neglect or ignore this approach in a mistaken attempt to streamline operations. By December 2022, both Ohio and Pennsylvania should be nearing adult-use legalization if both states do not achieve full legal status earlier in the year. When adult use inevitably occurs, it will be well received in both states. Some newly legal markets, like New York, will continue to lag in implementation, particularly due to the complexity of diversity, equity and inclusion efforts.
Legislatively, those states coming online with strong, comprehensive social equity programs will fare best. Illinois’ slow crawl to issue its social equity licenses, and the criticism of those that have been issued, should provide lessons learned for other states.
“As new states come online they should learn from the pain points of markets like Illinois and Colorado and the expectations of a sound social equity policy,” Caltabiano noted. “Illinois has been faced with litigation and the state still has not formally announced any of the retail licenses that were promised. This delay has stymied the entire development of the state’s market. Other states can learn what has worked well–and what hasn’t–by looking at Illinois and Colorado’s wins and losses. ”
Election politics likely dooms federal legislative movement in 2022
Despite the watershed moment of the Senate leader placing the full backing of his office behind total cannabis legalization, there is little reason to believe that legislation will see the light of day in the coming year. Positive movement toward full legalization is extremely unlikely during the midterm election cycle, and even more so under the questionable support of the Biden administration. A best-case scenario might include some kind of industry tax or banking reform legislation, but even these widely supported measures may fall victim to election-year posturing.
“I don’t see much change happening under this administration, particularly during a midterm year. Our best hope is for banking or tax reform, not sweeping legislation,” Caltabiano said. “Cannabis stocks will continue to be pummelled due to this lack of federal movement on legalization, and there will be a continued disconnect between stock prices and the performance of companies due in large part to this inaction.”
Despite this assessment, Caltabiano said that political maneuvering will continue to mark the effort toward federal legalization in 2022, even if progress toward passage of legislation is stalled. For example, some Republican momentum toward legalization may beat Democratic efforts to the punch, particularly if midterm elections result in a new Republican-led Congress. In the first Republican-led effort to repeal federal marijuana laws, U.S. Representatives David Joyce (R, Ohio) and Don Young (R, Alaska) introduced legislation to remove marijuana from the Controlled Substances Act (CSA) in May. The ‘‘Common Sense Cannabis Reform for Veterans, Small Businesses, and Medical Professionals Act’’ would deschedule marijuana from the CSA and create explicit safe harbors so that licensed cannabis businesses can bank with financial institutions.
