Two short years ago, the cannabis industry was frothy with cash. In 2018, US venture capital investment in cannabis companies topped $900 million, and the combined value of roughly 200 merger and acquisition deals was more than $15 billion—more than a third of which came from tobacco and alcohol companies. The moment was often compared to the dot-com bubble of the 1990s—as was the bust that followed. Cowboys with ample cash and minimal expertise built a house of cards with questionable business models amidst rapidly evolving regulations. It soon came crashing down.
Perhaps the most visibly catastrophic was MedMen, the self-described “Apple store of cannabis” which instead became the “WeWork of weed,” losing 95% of its market value amidst allegations of stock manipulation, bank fraud, labor law violations, and bigotry—and a side of schadenfreude, given its flashy rise.
By the end of 2019, the value of the leading 45 North American cannabis stocks tumbled nearly 70% from their peak in January of 2018. Now, as those cannabis companies left standing struggle to recover, it’s time for them to start building sustainable businesses that can withstand the economic and social demands of 2020 and beyond.