Cannabis companies still standing after reset 'well positioned to thrive'

(This is a contributed guest column.To be considered as an MJBizDaily guest columnist, please submit your request here.) Pete Karabas (Courtesy photo)Over the past five years, the cannabis industry has experienced intense growing pains.

Capital overspending, regulatory friction and tax headwinds have taken their toll.After all the industry’s recent challenges, some level of natural selection was bound to occur.

As a result, the companies still standing today are often being run by the most disciplined, resilient management teams, which means these businesses are well positioned to thrive.The correction the industry has experienced has reset expectations and valuations to rational levels.

Unlike in 2019 or 2021, where investors were largely focused on companies showing strong growth and ability to acquire market share, today’s investors are focused on profitability and balance-sheet strength, prioritizing protection of capital. ADVERTISEMENT This is an environment where experienced investors can identify high-quality businesses with real assets, strong leadership and sustainable operations – and partner with them on attractive terms.

Over the coming years, these conditions should result in strong risk-adjusted returns for the best operators in the industry.Why today’s environment is compelling The past five years have been a proving ground.

Operators have navigated volatile pricing, limited access to capital and the punitive effects of Section 280E of the Internal Revenue Code.Merger and acquisition volumes have slowed, and more than $3 billion in industry debt is coming due by 2026.

Many undercapitalized companies have exited the market or entered receivership.But this dynamic has also produced a stronger cohort of companies – those that have weathered the storm by managing costs, maintaining compliance and building strong regional brands.

With valuations meaningfully lower than they were seve...