Takeaways from our conversation on economic headwinds, cannabis glut

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Inflation and an overheated labor market may be the country’s overriding economic concerns, but a big concern in cannabis today is a product glut in long-lasting states.

States like Colorado, where flower prices have fallen by more than 40%, have seen businesses close and lay off, according to a recent report by Marijuana Business Daily.

Glut, prevailing economic headwinds, supply chain issues and inflation are of course having a ripple effect on the cannabis insurance industry.

Erich Schutz

We talked about all of this in our last podcast with Erich Schutz, Vice President of Jencap Specialty Insurance Services, and Stephanie Bozzuto, Co-Founder and President of Marketing at Cannabis Connect Insurance Services.

Here are the takeaways from that conversation.

When companies are strapped for cash or under financial pressure, one of the first things management does is look to cut costs. For many businesses, especially those in the cannabis industry, insurance expenses are one of the largest items after payroll.

“So we’re now in a place where this particular expense is being scrutinized and scrutinized extensively,” Schutz said. “So we have operators looking at cost reduction, self-insurance, different types of risk transfer, and the nature of large cannabis operations expenses is absolutely going to change. And the risk management structure and the importance of risk management in these operations is going to change significantly over the next six months, in my view.

Stephanie Bozzuto

Schutz talks to many retail agents and their cannabis customers about insurance expenses lately. The bulk of these conversations are about companies that are already feeling the pressure of having to compete with larger, well-funded operations.

“I think all of the mom-and-pop operators and traders, even the middle market, are very concerned because margins are getting smaller day by day,” Schutz said. “So now they’re looking at increased competition, pressure from all sides. So I think we’re going to see a lot more consolidation, and hopefully these moms and pops and small operations can either build a brand that has value and that they can either sell or operate or find another way to consolidate and integrate so they have a better operation Because I think small retail operators are very short for this world , in my opinion.

The drop in the price of cannabis flower has had a direct impact on retail brokers.

Like Schutz, Bozzuto has been busy lately talking to insurance buyers who have seen prices drop by half or more, cutting into profits.

“So what we’re seeing now is a reduction in payroll, a reduction in revenue, and also a reduction in the inventory value which is the cannabis stock on their insurance policy, because the replacement cost value of the carriers, or excuse me, its real cash value is based on the wholesale price,” Bozzuto said. “So if the price is now halved, they have to cut it in half. So we are seeing changes. We see operators cutting fat per se and really looking to make very conscientious decisions when it’s based on expense. »

Recently, she “toured” along the California coast to visit clients, most of whom say the same thing.

“They’re frustrated that the price per pound is so low,” she said.

The impact of the cannabis glut compounds other economic realities, in which consumers are spending less, even with bargain cannabis prices, as they have to spend far more on groceries, gas and other drugs. other essentials.

However, she believes the nature of cannabis operators – who are risk takers who put everything on the line in a pioneering industry – will result in the survival of those who are fit to survive.

“So I would definitely say that people in the cannabis industry are extremely resilient. They’re very strong entrepreneurs. They’re great risk takers,” she said. strong and will be fine. We’re definitely going to see some leave the industry, which we’ve seen before. We’ve seen some of them, where they’re cutting their payroll. They have to cut some of their workforce to hang on and survive. But I think the strongest will make it, and I think the ones that probably won’t might have had no luck winning to begin with. It is really based on expenses, finances and very good forms, good planning and good execution. And these are the ones who succeed.

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