Investment and FinancingArticle25 Apr, 2022

Cannabis sinks amid weed glut, Congress' inaction

Industry executives blame Congress’ failure to pass any significant cannabis legislation as the biggest reason the sector is flailing.

The nation’s marijuana industry has boomed during the pandemic. So far, 2022 is looking like a bust.

Weed sales hit $27 billion last year, nearly doubling figures from just two years earlier — and revenues are projected to double again over the next six years. Even pot supporters in Congress seemed well-positioned to dismantle decades-old restrictions.

But the still-green industry is mired in a financial funk: Stock prices have plummeted. Capital raises have crashed. And marijuana prices have slumped.

“There’s a lot of assets just not worth anything, so they’re just going to go away,” said Morgan Paxhia, co-founder of pioneering cannabis investment firm Poseidon Asset Management. “We’re seeing defaults picking up; we’re seeing businesses shuttering.”

While a new glut of semi-legal weed has helped sink prices, industry executives and investors say the lack of progress on federal marijuana legislation is the single biggest factor driving the sector’s economic downturn — and it’s unclear when their odds will improve. After Democrats won total control of the federal government in 2021, optimism swept the industry that Congress and the Biden administration would loosen restrictions on the drug and make it easier to run a profitable business.

“Stocks went freakin’ hog wild, because everybody thought, ‘Holy shit, Democrat White House, Democrat Senate, we’ll get legalization,’” Scott Greiper, president of Viridian Capital Advisors, which tracks the sector, recalled.

Greiper pointed out that cannabis companies raised more money in the first quarter of 2021 than at any time in the history of the decade-old industry.

But that euphoria proved misguided. In the ensuing 16 months, Democrats in Washington have done nothing to lift federal cannabis restrictions, and the once-bright outlook for legislative progress has dimmed. The latest blow: Last week’s announcement by Senate Democrats that they’re delaying the introduction of comprehensive cannabis legalization legislation, perhaps until August.

Amber Littlejohn, executive director of the Minority Cannabis Business Association, says there was a misguided exuberance among cannabis investors who failed to understand how difficult it would be to achieve policy victories in Washington.

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