Bringing in the green

The cannabis industry wasn’t exactly riding high in 2023. A glut of inventory drove prices down. Sales slowed in states where weed’s been legal for awhile, such as Colorado and California. And even at the dispensary, budget-conscious customers opted for lower-priced goods over midrange ones in early 2023, Trulieve CEO and founder Kim Rivers said during an earnings call in February, though customer spend went up in Q4.

But some of the nation’s largest cannabis providers bucked this trend, and scored record earnings last year. Curaleaf, which runs 147 dispensaries, saw its retail revenue top $1 billion for the first time, beating 2022’s by 6%. Verano, with 138 dispensaries, grew its revenue 7% in 2023; Green Thumb, with 91 dispensaries, grew 4%. (Trulieve, however, which has 193 dispensaries, saw its revenue drop 7%.)

And Big Weed’s hoping to bring in even more green in 2024. There’s reason for it to be hopeful: Several states are poised to legalize recreational marijuana this year, opening up new markets. As Rivers noted, Florida alone “could be a $6 billion market opportunity, effectively tripling from today's medical only market.” Ohio could be a $2 billion market, she estimated, and Pennsylvania’s could total $4 billion.

Easier times on the schedule? What’s more, the DEA is under pressure to reclassify marijuana from a Schedule I to a Schedule III drug this year. That change would make it easier for a cannabis provider to operate “as a normal business,” as George Archos, founder and CEO of Verano, put it during a February earnings call.

Many banks won’t do business with cannabis companies because the drug remains illegal at the federal level. That’s led to complications. As the Wall Street Journal pointed out, customers can’t pay for their weed with credit cards, and dispensaries handle most transactions in cash—that is, paper money. Having so many greenbacks on hand has made them a target for thieves.

Rescheduling cannabis still wouldn’t legalize it. But such a change, Archos surmised, could make financial institutions more amenable to working with cannabis companies. “This would have the potential to significantly improve our credit terms, resulting in lower costs of capital,” he said, adding that it could also let them adopt “a much less burdensome cash management system.”

Will the IRS chill out?: Cannabis providers are also subject to Section 280E of the tax code, a provision that prevents them from taking many standard business deductions. If cannabis were rescheduled, Section 280E wouldn’t apply. “We anticipate we would finally be taxed as an ordinary business, be able to deduct salary, travel, rent, service provider and countless other expenses from our taxable income,” Archos said. He estimated that Verano could have saved more than $80 million in taxes in 2023 had Section 208E not been a factor.