California’s Cannabis Industry Faces Challenges Amid Difficult Market Conditions and Regulatory Changes

LOS ANGELES– During a recent earnings call, Kyle Kazan, CEO of Glass House Brands, revealed that challenging market conditions in California are forcing cannabis operators to leave, leaving many vendors unpaid. Kazan stated that “many dispensaries are not paying their bills on time, and all branded players are facing a daily decision of whether or not to sell to dispensaries that have a compromised ability to pay.” The CEO also noted that the worst is yet to come, with many dispensaries currently on credit hold.

Kazan went on to share that a change in state law that will give retailers access to more immediate cash through excise taxes will lead to a “reckoning” when tax bills come due. Instead of setting that money aside for tax collectors, some retailers are using it to finance operations, and as of December 2022, the industry owed the state over $250 million. Kazan predicts that 2023 will be a shakeout year for California’s cannabis industry, leading to more contraction, distressed assets, and companies exiting the market, as has already happened in the cultivation sector.

Glass House CFO, Mark Vendetti, stated that the company just paid off $3.9 million in back taxes to state and federal governments in Q4 2022, and that the company is one of only a few consistently paying its tax liabilities. However, the company has reduced its revenue projections for the coming year, as Vendetti expects a “difficult retail landscape.” Despite this, the exit of many licensed cultivators has resulted in a surge in demand for Glass House by brands and manufacturers looking for raw cannabis for their products.

Most people would agree, the current market conditions in California’s cannabis industry are leading to many challenges for operators and vendors alike, with many dispensaries unable to pay their bills on time. The industry is facing a reckoning with the upcoming tax bills, leading to further contraction, distressed assets, and companies leaving the market. Despite the challenges, Glass House is consistently paying its tax liabilities and remains in demand from brands and manufacturers.