Most Cannabis Companies Underperformed Last Year, Need Funding to Survive

Last year’s global cannabis market underperformed expectations, most companies will need funding to survive the coming year, and the industry outlook is “bleak.”

Those are some of the broad takeaways from a new report released this week by Ernst & Young Global Limited, an international cannabis consultancy. The informal poll, titled the “EY Global Cannabis CEO Survey,” was conducted between December and January.

There were roughly 50 respondents, including 28% from Canada, 20% from the United States, and the rest from Europe, South America, Australia, and Israel.

Among the findings:

• Roughly 58% of companies fell short of financial performances expected by their boards of directors.
• 57% of companies said they’d need more funding to survive the next 12 months.
• More than 13% used layoffs to reduce costs in 2022.
• 55% are expecting a good number of their competitors to exit the cannabis industry in 2023.

“While the cannabis market is expected to sustain its growth (albeit at a decelerating rate), the consensus outlook for the industry in 2023 is bleak,” the report concluded. “The cannabis industry is poised to experience its version of the dot-com bubble burst of 2000.”

The report asserted that cannabis executives believe several factors will combine to make 2023 a year of attrition, including:

• Inflation
• The expensive cost of capital
• Increasing competition
• Price compression
• Margin pressure

“The theme for the short-term is ‘survival of the fittest,'” the report quipped. “A significant number of cannabis companies are expected to either collapse or become insolvent.”

The report attempted to put a rosy spin on the outlook as well, and forecasted that despite the likely failure of many cannabis companies – particularly in North America – the “long-term outlook on the industry is positive.”

It noted that the cannabis market just in the United States alone is estimated to be worth $100 billion, of which only about $25 billion is so far being bought and sold legally.

“In the future, we believe greater acceptability with legalization and innovation should boost that number,” the report stated.

But the bottom line is that first there’s going to be pain. And probably lots of it.

“After years of fast growth, the industry is expected to face a reset,” the report predicted.