EY Global Cannabis CEO Survey: Industry Faces Intense Challenges but Remains Optimistic for Growth in 2023

LOS ANGELES– More than half of cannabis companies failed to meet their board’s expectations in 2022, as revealed by the EY Global Cannabis CEO Survey. These underperformances were primarily due to external forces such as cut-throat competition, price and margin pressures, and complex regulations that have had a lasting impact. However, despite these obstacles, 76% of executives claimed to have a well-defined business strategy for 2023, with an emphasis on margin enhancement and revenue growth (94%), product innovation (67%), and market expansion (55%).

Rami El-Cheikh, EY Americas Cannabis Centre of Excellence Leader, explains that last year was challenging for the industry, with inflationary pressures and limited capital availability. Nonetheless, companies with strong foundations are confident that they can weather the storm and are tightening their business strategies as competition continues to increase. The risks facing organizations continue to grow with excessive competition (76%), ongoing pricing pressure (73%), and scarcity of capital (42%) emerging as primary concerns. Further, 40% of cannabis executives anticipate that competition will increase in areas such as contract manufacturing, pheno-hunting, and low-cost, large-scale flower cultivation.

Despite the external financial and economic uncertainty in 2023, 42% of cannabis executives predict high-growth economic scenarios for the industry, with growth projections exceeding 5% over 2022. According to El-Cheikh, “the sector is facing a major reset in 2023 – to survive, cannabis companies will have to sharpen and focus their business strategy with clear fields of play where their capabilities can deliver an advantage and a distinct consumer-centric value proposition.”

In terms of mergers and acquisitions (M&A), 50% of global cannabis executives plan to maintain or reduce overall capital investment in 2023. However, many anticipate potential opportunities from competitor exits and legalization in new markets, with Germany, Israel, Australia, and other European countries cited as the most attractive jurisdictions despite current uncertainty. Cannabis executives are placing a greater emphasis on being strategic and cautious with M&A in 2023, focusing on identifying opportunities for true synergies and profitable market share. In today’s tough environment, M&A activity should only be considered in select cases where companies have built a strong enough foundation to confidently realize rapid cost savings and revenue synergies.

More than half of executives recognize that their companies will require funding or financing over the next 6-12 months to sustain operations and fund innovation and M&A initiatives. Beyond this time frame, companies will exploit every lever possible to attempt to achieve cash flow positivity, including tight cost controls and stringent working capital management.

“The year ahead will force many companies to either exit the industry or become exceptional operators, executing efficiently with resolve, grit, and a value-oriented mindset,” adds El-Cheikh. “In this new normal, flawless operational execution and financial management should be top of mind.”