California is one of the booming cannabis markets in the whole country. According to research company BDS Analytics, the state is expected to hit $3.1 billion in sales this year; that number is expected to reach $7.2 billion by 2024.
California presents a tremendous growth opportunity for the industry. And so when investors learned that the Bureau of Cannabis Control (BCC) and the California Department of Public Health suspended more than 400 marijuana licenses, it raised some questions and caused investors to pause on investing for now.
So, why have companies been suspended? The reason is not related to any illegal actions. Rather, it looks to be due to administrative matters. A variation of cannabis businesses, including retailers, wholesalers, and distributors failed to achieve training and other steps necessary to enroll in the state’s track-and-trace system. Those are critical parts enabling regulators to stay on top of the industry and supply chain.
Regulators suspended the businesses after they missed to complete the duties on time. As of Nov. 7th, 407 suspensions were imposed on businesses. Still, the halts are not permanent and the licenses can be reinstated.
This disruption will affect the industry, however. Even though only 13 production licenses were suspended, cannabis retailers and distributors can have an implied influence on growers. Numerous cannabis companies are grappling to make free cash flow as it is, and these suspensions could make things worse. Cannabis raisers need to be able to sell their products to be able to finance their processes, and the suspensions could have a notable impact on sales and cash flow. And if less marijuana is grown, the snowball effect can affect retailers, distributors, and other cannabis-related businesses.
On the flip side, businesses that are still open could benefit from this. With less supply available, the price of cannabis products can be increased, which will grow their profits. Unfortunately, that is not good news for the cannabis consumers because those price hikes will be passed onto them.