Another Look at the Whitney Cannabis Business Conditions Survey

The headline of the Whitney Economics press release announcing the results of its 2024 cannabis business conditions survey declared, “ONLY 27.3% OF U.S. CANNABIS OPERATORS ARE PROFITABLE,” a statistic that was also the focus of news outlets carrying the story, and rightly so. It is the salient takeaway that also happens to provide a rather gloomy depiction of the current state of the industry. But that 27.3 percent number, as awful as it sounds, is also a snapshot in time, a single data point along a trajectory of data points that taken as a whole presents a nuanced and slightly more optimistic perspective of the industry’s more recent fortunes. While it may be impossible to unsee that dismal profitability percentage, other findings in the survey that point to fewer unprofitable companies and more companies breaking even do mitigate its significance.

The survey covers a finite time period, reporting nine data points across three years (2022, 2023, 2024) and three categories (Profitable, Breaking Even, Not Profitable). The results are below:

The first thing that jumps out is the sharp decline in profitable companies from 2022 to 2024, the number falling approximately 15 percentage points from 42.40 percent to 27.27 percent. But the decline from 2022 and 2023 was even greater – about 18 percentage points – meaning the number of profitable companies did not decline but increased by just under 3 percent from 2023 to 2024. Whether that is the beginning of a trend remains to be seen.

The Breaking Even numbers are also interesting and significant, rising over twenty percentage points from 2022 to 2023, with the greatest gain – about 14 percentage points – between 2022 and 2023, indicating that the 6-percentage point increase between 2023 and 2024 was a continuation of a trend that was already well underway.

The last category, Not Profitable, also tells a story of slow but steady improvement (i.e. decline) in the number of unprofitable cannabis companies. From 2022 to 2024, the number decreased by a little under 5 percent after having risen by a little over 3 percent between 2022 and 2023. That means the number of unprofitable companies declined by a far more significant 9 percentage points between 2023 and 2024. Whether that one-year decline continues on to become a lasting trend also remains to be seen.

It is admittedly difficult to put lipstick on the alarmingly low percentage of profitable cannabis companies, especially when compared with the 65 percent of all small businesses in the U.S. that are profitable, but small businesses in the U.S. do not have to deal with the onerous 280E tax, which for many cannabis business precludes profitability. That is precisely why Whitney Economics noted in its press release that without federal action to correct the unfair tax situation, the toll on cannabis companies will not only continue but increase.

“The proposed rescheduling of cannabis would result in a lower tax burden and increase cash flows,” said the company. “In 2024, the cannabis industry is forecasted to pay an additional $2.3 billion in excess taxes as a direct result of the current scheduling policy. Without reform, this excess tax burden is expected to increase to $5.2 billion by 2030.”

As hobbling as 280E may be, excessive taxation is not the only reason why cannabis companies are finding it difficult to gain and maintain profitability. As explained by Whitney Economics founder and Chief Economist, Beau Whitney, “The cannabis industry is under economic distress, primarily due to the confluence of heavy federal taxes, lack of access to financial services, and heavy state and federal regulation.”

In light of all these challenges to normal commerce, the more subtle indicators found in the Whitney Economics survey could be seen to reveal a generally capable and resilient industry, almost 70 percent of which is either profitable or breaking even in the face of overwhelming obstacles.