The cannabis industry is experiencing one of the most common developments in an industry’s evolution: consolidation.
Consolidation is a normal part of economic growth – it happens in literally every industry, but it can be a difficult time for businesses and investors.
So what does consolidation mean for the cannabis industry? We’ll break it down so you can understand how this might impact your business and what you can do about it.
What Is Consolidation?
Consolidation is a period of indecision, usually in the stock market. It can occur when traders are unsure about the direction of a stock’s price and wait for more information or a trigger to help them make a decision.
Consolidation patterns are characterized by price movements within a support and resistance range over a period of time. The pattern can be broken by relevant news to the company or limit orders (a trader’s instruction to buy or sell at a specific price).
Following consolidation, there is usually an increase in volatility as traders rush to take advantage of any available opportunities.
How Is Consolidation Going To Effect Cannabis?
As the cannabis industry has grown, it has become increasingly fragmented. In a fragmented market, no single company or organization has adequate influence to move the industry in a specific direction. This means that the cannabis industry currently has no monopolies, unlike Canada, where provincial governments control their markets.
In the US, large firms are merging to grow revenue and ease entry into new markets — such as Columbia Care by Cresco Labs in a $2 billion deal or Etain Health by RIV Capital ($247 million). At the lower end of the spectrum, some markets are facing profit and regulatory headwinds, so consolidation is driving efforts to gain market share and create large, loyal customer bases.
The cannabis industry has been through a lot since legalization.
It’s seen an economic boom and a shake-out, and these events have had some lasting effects on the industry. Cannabis came onto the scene with a bang: as soon as recreational marijuana was legalized, thousands of businesses sprang up, creating a massive boom. Unfortunately, when there’s a ton of competition, things can get pretty intense.
In Portland and Seattle, for example, competition is extremely fierce, and numerous businesses have gone under over the past few years, unable to compete in the cutthroat market. Florida testing labs are also struggling to survive, and some are resorting to rather unscrupulous tactics like fudging potency numbers to retain customers.
How Can A Small Business Survive During This Time?
Consolidation is here. And it’s not going anywhere anytime soon.
But that doesn’t mean your small business has to go down with the ship. In fact, the best route to navigating consolidation might be adaptation.
The market may be growing, but that means demand is increasing as well. To survive, small businesses need to be willing to listen to customer needs while also responding quickly from competitive threats. This means that businesses need to have a strong organizational culture within the business operations. They need to commit to unique branding, they must stand out and reward their customers for their loyalty, they must be prepared with a viable strategy, and avoid becoming a victim to fate!
Many businesses will fail, be acquired, or merge during this time, so weigh out your options and decide what’s best for you!
We hope this breakdown was helpful, and we’re so glad you’re interested in learning more.
If you’re a consumer, don’t worry about a lack of supply — remember that you can help small businesses stay afloat by purchasing from small dispensaries and buying locally grown cannabis.
And if you’re a business owner, stay strong! We know it’s not easy, but keep fighting for what’s right.
Enjoyed that first hit? Come chill with us every week at the Friday Sesh for a freshly packed bowl of the week’s best cannabis news!