that require operations to move to be within a certain distance of schools, or a city or county has decided to ban commercial cannabis activities, so the company must cease or move its operation.
Other Pitfalls As in any industry, cannabis companies do face several potential pitfalls. To keep this article consistent, we will once again focus on the state of California. As mentioned above, regulation remains one of the biggest pitfalls to the industry. One change in regulation can take an operation out of business or cause major setbacks. An additional pitfall that cannabis companies face is the frequent fluctuation of the price of cannabis products. At one point in time, a pound of indoor high-quality flower was worth $8,000/lb., but that has since decreased to around $2,000/lb. Many businesses that anticipated these prices for the long term back in 2017 felt encouraged to beef up and expand their operations to keep up with the demand at an inflated price. Now that cannabis is becoming more readily available across the United States, the price has lowered because of supply versus demand. A second pitfall is inconsistent supply of popular market products. While the pharmaceutical cannabis industry has a scientific method to produce consistent cannabis products each time, other cannabis companies are not under such obligations, so they try to constantly change product to meet demand and also market value. An example would be the rise of marijuana vape pens. As the demand continues to surge, vape pen manufacturers at
times adjust product ratios to keep the costs lowered to meet market prices, resulting in inconsistent products. A third, and final pitfall (although there are more to be sure) is that there are not enough dispensaries in California to support the surplus of product grown, especially considering the taxes that a consumer will pay at a dispensary versus buying flower on the street. As of the writing of this article, a consumer at a dispensary can anticipate spending an additional 20-40% in taxes (excise, local, and state taxes) on top of the sales price of the product. This ties back into the state regulations challenges.
Projected and controlled expansion is a great time to borrow.