According to the 2023 MJBiz Factbook, a slowing economy and falling prices are just two of many negative factors putting the squeeze on Multi-State Operators (MSOs) looking to profit in 2023. But not all hope is lost. There are ways MSOs can overcome these challenges.
Today, we’ll look deeper into why MSOs are under immense pressure and offer a few tips on finding relief, including how cannabis ERP software fits into the picture.
Why MSOs are Feeling the Squeeze
A disappointing economy and the reduction in cannabis prices are no joke, but there are other equally unhumorous challenges facing MSOs. One example? Raising capital.
In an article by MJBizDaily, author Kate Robertson states her belief that the cannabis industry’s challenges with raising capital in 2022 will continue in 2023. “Many marijuana companies seeking capital are expected to find limited pickings and costly terms this year, providing little relief from 2022, when the amount of money ponied up by investors tumbled more than 60% from the year before.”
2022 was a particularly disappointing year, and a Cayenne Consulting Services article points to lack of federal cannabis reform, the extreme price drops in cannabis products and “delays in launching retail cannabis dispensaries throughout the US” as the main culprits. And MSOs’ unrealized potential didn’t help.
“Initially, investors assumed that economies of scale and industry expertise would give MSOs an advantage in the growing cannabis market,” the article notes. “However, in this challenging investment and retail climate, MSOs have not fared any better. Declining prices and oversupply have dramatically reduced margins and profitability, resulting in retail closures nationwide.”
But trouble raising capital isn’t the only reason MSOs are feeling the squeeze. The fact that many are carrying significant debt, sales are plateauing as inflation eats up disposable income (and fears of recession are closing wallets) and top markets are becoming saturated are all contributing to an unpleasant 2023 for MSOs.
Even so, there are glimmers of hope shining through the pressure-laden cannabis clouds.
Still Room for Cannabis Optimism
Several states are opening doors to significant growth opportunities. Maryland voters approved recreational cannabis, and on July 1st, 2023, existing medical cannabis dispensaries that converted their licenses were able to start selling in the recreational market.
In Florida, a proposed ballot measure to legalize recreational cannabis has garnered enough signatures to place it on the ballot in 2024. In an article covering this potential boon for the cannabis industry, Politico reporter Bruce Ritchie writes, “While it still faces a Florida Supreme Court review and an expected legal challenge from state Attorney General Ashley Moody, amendment supporters heralded the breakthrough.”
In addition to recreational market gains, the cannabis industry is seeing a potential slow down in pricing concerns. Robertson—quoting Jesse Redmond, managing director and head of cannabis research at Florida-based investment analyst group Water Tower Research—writes, “Prices are also showing signs of stability in some markets, such as California, Michigan and Oregon.”
And though 280E is still in play, there continues to be push for federal tax relief by members of Congress.
Tips for MSO “Survival”
Between the challenges and the wins (both real and potential), MSOs are on a rollercoaster ride for survival. But some believe this tough time can help the cannabis industry in the long run.
In a Proactive Investor article, Emily Jarvie writes:
Cannabis multi-state operators (MSOs) in the US continue to face challenges after Congress failed to pass the Secure and Fair Enforcement (SAFE) Banking Act in 2022, which would protect banks and financial institutions providing services to legitimate cannabis businesses from penalties, with investor enthusiasm at an “all-time low,” according to analysts at Stifel GMP. However, analysts believe this survival period could strengthen some operators by triggering strategic decisions to streamline businesses and better cash flows.
Sounds good, but how do MSOs streamline businesses and run lean operations? With the help of MSO-specific ERP software.
Here are five tips for surviving as an MSO in today’s market:
Tip #1: Manage Multi-Company and Multi-Facility Operations
With cannabis ERP software, MSOs can standardize operations across multiple business units from a single platform. For example, creating a common General Ledger (GL) within the software allows users from every entity access to company-wide data and the ability to pull financial reports quickly and easily.
Tip #2: Utilize Real-Time Information
By using cannabis software that serves as the business management solution for all entities within the MSOs purview, business leaders have full visibility into their entire business from end-to-end. This real-time information supplies the knowledge needed to make wise, data-driven decisions.
Tip #3: Track Inventory and Improve Costing
Staying on top of inventory is critical for any business looking to succeed, and MSOs are no exception. Cannabis software provides lot traceability features and functions that enable MSOs to track inventory movement as well as standard and actual costs. Such inventory and cost information provides insights into customer and supplier orders while helping to control and improve overall costs.
Tip #4: Reduce Waste
Reducing waste in the cultivation process provides huge benefits, including saving MSOs money and aiding them in their sustainability goals. Cultivation functionality built directly into cannabis ERP software also helps MSOs account for waste for regulatory reporting purposes.
Tip #5: Better Plan Production
Production planning is a complex process, but cannabis software simplifies it by continually adjusting forecasts based on recent periods of demand, forecast error, demand exceptions and historical data. Accurate forecasts help MSOs better plan production and meet their attainment goals.
Despite an uncertain economy, continued federal stonewalling, pricing challenges and market saturation, MSOs can see some light at the end of the tunnel as states continue to legalize cannabis for medicinal and recreational use and as members of Congress fight for their rights. And with the help of a reliable ERP solution, like CannaBusiness ERP, they can do more than survive—they can streamline operations and thrive in today’s marketplace.
To learn more about CannaBusiness ERP, which is built in the powerful Sage X3 platform and configured by NexTec experts, reach out to our team today with any questions and/or to schedule a demonstration. We’d love to chat.