Why many cannabis businesses are cautionary tales, and how Illinois’ growth industry can learn from growing pains
Recreational sales in Illinois exceeded one billion dollars in 2022 and are on pace for a record year. Aspiring weed entrepreneurs across the border in St. Louis, who might be able to sell products as early as February, see lots of green in the future and are eager to dive in. Yet despite this economic promise, capturing a piece of that success can be unexpectedly challenging by factors many businesses aren’t prepared to face, such as financial restrictions, compliance, and a fundamental misreading of the industry.
Many think launching a business in an age of legal cannabis equals an easy gold mine in Illinois. But it’s just this type of mindset that has led to unseen pitfalls and failure rates. Setting up a successful venture requires entrepreneurs to understand the business culture of the industry and state and be agile enough to operate in a patchwork of inconsistent local government and regulatory frameworks.
Some lack the sophistication to understand the market and Illinois’ regulations. When a license is awarded, new owners base projections on faulty models and a misreading of the marketplace. Some operators make projections based on the forecasted price per pound of weed at the time of entry. However, their inexperience meant they failed to consider that once competition in the space increased, the price per pound of cannabis would drop, negatively affecting the bottom line.
Other onerous regulations are affecting Illinois businesses. First and foremost, the lack of a centralized oversight body for the cannabis industry. Currently, there are multiple agencies, reporting structures, and approval processes, creating confusion and leading to almost certain violations. The THC tax, along with other taxes and fees, increases the overall price of legal products leading to reduced sales and subsequently weighing down revenue. When you also consider how conditional licenses restrict owners from selling equity, one can see that all these not only keep businesses from thriving but continue to allow the illicit black market to grow, which peels away even more potential sales.
There are a few silver linings. First, even though a setback is a tough blow, the state’s growth rate is so rapid many are rehired at a strong pace. More importantly, it will force those who remain or restart to adopt new business practices that are efficient and translatable. Another is that aspiring weed entrepreneurs in Missouri can use their neighbor’s experience to inform them of the best paths to success.
Joseph Davidson and Ranson Shepherd are the cofounders of Qanvus, a Wyoming-based cannabis industry business resilience and management consulting firm.