California industry giant, MedMen, is selling its holdings in Arizona — a state it entered a little more than a year ago. It is also selling a factory in Illinois to help the multi-state operator cut costs and shore up cash. In part, the company is trimming down its holdings in order to focus more on markets like California.
CNN reported recently that MedMen has been struggling with cash flow problems, falling behind in paying vendors. Speculation ranges between too fast growth and asset grab issues. But most certainly, the Culver City, CA based company struggles to navigate the California market like all licensed cannabis companies in the state who continue to compete with black market cannabis, a part of the industry that persists even three years after legalization and is not beholden to the same requirements.
And another rub for the marijuana industry. Despite reports that MedMen is heading into “bankruptcy”, that is not an option available to marijuana businesses because cannabis remains illegal on the federal level.
All along the supply chain the industry can struggle with the ever-changing regulation landscape. Growers are faced with recalls almost inevitable. The culprits are often mold or yeast, not pesticides or other man made contaminants.
Retailers also compete for business with unlicensed, black market retailers which can look a lot like “real” dispensaries. The BCC recently implemented a requirement to post QR Codes, an attempt to inform the public whether a retailer was licensed and to help protect health and safety.
The industry took a hit, along with non-cannabis vape industry, late last year with the emergence of a lung disease connected to vaping and e-cigarettes consumption, sending even stock offerings plummeting.
California’s 3rd phase of testing regulations went into effect at the end of last year, increasing testing costs to cultivators. Some growers worry that the cost of compliance is getting too high to sustain.
And, of course, the taxing structure in the California industry continues to be daunting, amounting to over 30% of retail price, one of the highest in the nation. The direction of cannabis tax rates does not appear to be going down any time soon, despite attempts by the Legislature to give the industry some relief. The CDTFA increased the markup rate as of the new year, requiring an increase in collection of excise taxes from retailers to distributors.