Tag Archives: Focus Article

Why Understanding True Manufacturing Costs Is Essential for Cannabis Business Survival

By Kate O’Conner-Masse
No Comments

The U.S. cannabis industry generated more than $30 billion in regulated sales in 2025, yet profitability has become harder to predict. According to a recent national index report by Cannabis Benchmarks, wholesale pricing remains volatile, recently fluctuating between approximately $987 and $1,007 per pound.

In an environment where pricing moves faster than cost structures adapt, profitability is no longer driven by yield alone. It is driven by cost visibility.

Yet many operators still cannot confidently answer a simple question:

What does it truly cost to produce this batch?

Cannabis Is a Batch Manufacturing Business

Every cannabis product, from flower to edibles to pre-rolls, is produced in batches.

Like food and pharmaceutical manufacturing, cannabis production requires costs to be tracked at the batch level to determine the true cost of goods sold (COGS). Without batch-level clarity, financial decisions are often based on averages,  and averages can conceal risk.

The Two Categories That Define Manufacturing Profitability

Understanding profitability begins with distinguishing between direct and indirect costs.

Direct Costs

Direct costs can be attributed directly to a specific batch. These include:

  • Production labor tied to a batch
  • Cannabis inputs and recipe ingredients
  • Packaging materials
  • Batch-specific testing fees

These costs are typically visible and easier to track. They form the foundation of traditional COGS calculations.

But direct costs alone do not provide a complete financial picture.

Indirect Costs

Indirect costs are the expenses required to operate the business, but cannot be neatly tied to a single batch.

They include:

  • Supervisory and management labor
  • Administrative staff
  • Facility rent and utilities
  • Security
  • Depreciation
  • Equipment wear
  • Compliance overhead
  • Process-stage supplies not traceable to a specific unit

In many cultivation operations, indirect costs represent a substantial portion of total production expense. When these costs are not allocated consistently across batches, profitability calculations become distorted.

Why Pricing Volatility Makes This More Urgent

With wholesale price indexes fluctuating and competitive supply dynamics shifting from quarter to quarter, margin assumptions can change rapidly.

If an operator’s cost per gram is miscalculated by even 10 to 20 percent, pricing strategy, SKU rationalization, and expansion decisions may all be built on inaccurate foundations.

Pricing volatility alone does not eliminate profitability. But pricing volatility combined with incomplete cost allocation magnifies risk.

The Cost Structure Framework Most Operators Overlook

Cannabis manufacturing costs typically fall into five core buckets:

Direct Labor – Production payroll and contract labor
Direct Materials – Ingredients, packaging, testing, waste
Facility Costs – Rent, utilities, security, equipment
Office & General – Professional fees, travel, vehicles
Inventory Adjustments – Depreciation and accounting allocations

The framework itself mirrors traditional manufacturing industries.

What differs in cannabis is execution. Many operators rely on compliance systems and basic inventory tools that were not designed for managerial cost accounting. As a result:

  • COGS may be underreported
  • Indirect costs may be absorbed inconsistently
  • SKU-level profitability may remain unclear
  • Tax exposure under 280E may increase
  • Strategic decisions may rely on production metrics rather than margin analysis

Yield Is a Production Metric,  Not a Profitability Metric

Grams per square foot, harvest weight, and throughput remain important operational indicators.

But they are not measures of profit.

A high-yielding strain can still erode the margin if:

  • It requires longer cycle times
  • It consumes disproportionate labor
  • It demands greater energy input
  • It experiences higher waste or discounting

Production success does not inherently translate to financial performance.

Profitability emerges only when production metrics are paired with accurate cost allocation.

Practical Steps Toward Better Cost Visibility

Operators do not need complex systems to begin strengthening cost discipline. Immediate steps include:

  1. Clearly defining which labor roles are direct versus indirect
  2. Establishing consistent methods for allocating facility and overhead costs
  3. Reconciling batch-level costing to financial statements monthly
  4. Reviewing SKU-level margins quarterly rather than relying solely on yield data
  5. Separating compliance reporting from managerial cost analysis

Even incremental improvements in cost allocation accuracy can meaningfully impact pricing decisions and profitability insight.

The Shift From Growth-Driven to Margin-Driven Thinking

In earlier stages of legalization, growth often masked inefficiencies.

As markets mature, financial discipline becomes the differentiator.

Operators who understand how direct and indirect costs flow into each batch gain the ability to:

  • Optimize strain mix
  • Identify underperforming SKUs
  • Adjust pricing intelligently
  • Improve investor reporting clarity
  • Make smarter capital allocation decisions

In a market where pricing can fluctuate and margins continue to tighten nationally, cost visibility is no longer an accounting exercise. It is a strategic advantage.

Bottom Line

The U.S. cannabis industry is entering a more disciplined phase. Sales remain strong at the macro level, but pricing dynamics and competitive pressure demand sharper operational awareness.

Manufacturing accounting fundamentals,  especially understanding how direct and indirect costs flow through batches,  form the foundation of sustainable profitability.

Operators who move beyond production metrics and invest in cost clarity position themselves to grow smarter, protect revenue, and remain competitive in an increasingly complex marketplace.

In the next phase of cannabis growth, operational sophistication, not output volume, will define long-term winners.

 

Inconsistent Messaging Is a Compliance Risk. Full Stop.

By Michael Mejer
No Comments

Picture the moment a cannabis company’s compliance team gets copied on an email from a banking partner’s risk officer. The subject line says “Questions re: public materials.” Attached is a spreadsheet. On one side, language from the company’s Florida medical dispensary website. On the other, language from the California recreational site, the New Jersey acquisition press release, and a quote from the CEO’s interview in a trade publication eight months ago. The risk officer wants to understand how all of it reflects the same company, because from where she’s sitting, it doesn’t. 

This is not a hypothetical. It is a conversation that is becoming more frequent as financial institutions become more sophisticated in how they evaluate cannabis operators.

Inconsistent messaging across states is not a brand problem. It is an operational risk that has been misclassified, and companies that treat it as a marketing issue tend to find out the hard way that they have compliance exposure.

What Regulators and Banks Are Actually Looking At

A state regulator reviewing a multi-state operator and a financial institution conducting due diligence are doing the same thing, even if they don’t describe it that way. Both are trying to determine whether the organization they’re looking at is actually in control of itself, its operations, its decisions, and its story.

Take a company positioning itself as a premium medical operator in Florida, a value-driven recreational brand in California, and a community dispensary in New Jersey. From the inside, that probably reads as market awareness. From a regulator’s desk or a bank’s credit committee, it reads as an organization that hasn’t decided what it actually is. Localization is a legitimate strategy. Contradiction isn’t.

Regulators look for discipline. Banks look even harder, and a financial institution considering a lending relationship or a banking program with a cannabis company wants evidence that the organization is coherent: that leadership, operations, and communications are all aligned on the same set of principles. When the public-facing story differs meaningfully, depending on which state you’re looking at, it introduces a question that nobody wants to answer in a credit committee: Does this company actually know what it is?

The Specific Ways Inconsistency Creates Exposure

The risk shows up in a few specific patterns. Claim inconsistency is where it gets most expensive. A company runs health-adjacent language on its Florida medical site that it would never put on its California recreational pages, sometimes because the regulatory environments differ, sometimes because the Florida site was built by a different team two years ago, and nobody has looked at it since. Either way, both versions exist publicly, simultaneously, and are findable by anyone who goes looking. A regulator in a new market where the company is seeking a license will find them, and if what they find contradicts what’s in the application, it creates a discrepancy that requires explanation.

The second pattern is acquisition-related fragmentation. Integration often prioritizes operations and compliance while messaging gets addressed later, or not at all. From the inside, this can feel like flexibility. From the outside, it looks like an organization that hasn’t finished becoming one.

Due diligence on a cannabis company now routinely includes a sweep of public-facing materials across every market in which the company operates. Reviewers are looking for the version of the company that shows up when nobody is actively managing the narrative: the archived press release from the acquisition two years ago, the market-specific website that never got updated, the social content that says something different than what’s in the pitch deck.

When those materials tell inconsistent stories, it doesn’t automatically kill a deal. It does create questions that have to be answered, and every question answered under scrutiny starts from a worse position than the same question never having come up. At that point, the company is no longer controlling its own narrative. Someone else is defining what the inconsistency means, and in a regulated industry, the interpretation that fills that vacuum is rarely favorable.

Messaging Consistency as Compliance Infrastructure

The frame that makes this problem solvable is treating narrative consistency the way serious operators treat compliance infrastructure.

A company’s messaging record doesn’t disappear when a campaign ends or a website gets refreshed. Press releases from three years ago are still indexed. Media coverage still quotes the positioning that got deprecated. Investor materials from the last raise still circulate. Every public statement a cannabis company has ever made is potentially part of the picture that a regulator or financial partner assembles when they look at the organization, and inconsistencies across that picture are visible to anyone who takes the time to look.

Companies that build a consistent narrative framework treat it the same way they treat SOPs. The core story doesn’t change. The way it is communicated across markets may be adapted to local contexts, but the underlying claims, identity, and standards remain uniform. That consistency is not just good brand management. It is evidence of organizational discipline that regulators and financial partners are actually looking for.

What This Requires in Practice

Fixing messaging inconsistency is not primarily a creative exercise; it is an operational one.

It starts with an audit of what the company is actually saying across all markets, all owned channels, and all public-facing materials. Most multi-state operators have never done this systematically, which means the first output of the audit is usually a document that surprises the leadership team. Claims that were approved in one market were never reviewed in another. Language that predates the current regulatory environment still lives somewhere. Positioning developed by an acquired brand is still out there, attributable to the company, and inconsistent with how the parent company describes itself.

Nobody is trying to make every market sound identical. The work is figuring out what can never change, regardless of the market: the claims, the standards, the core identity, and building a process that protects those things as the company grows. That is a different project from a rebrand. It is closer to writing an internal constitution that communications and compliance can both enforce.

The companies that treat this work seriously tend to discover something useful in the process: the exercise of defining what is consistently true about the organization is itself clarifying, it forces decisions that had been deferred, and it surfaces contradictions that were being quietly tolerated.

What comes out the other side is a version of the company’s story that can withstand the kind of review that serious operators now face regularly. Getting there requires someone who understands both the communications and compliance sides, not just one or the other. Communications people don’t always understand the compliance implications of the language they’re approving. The operators who close this gap most effectively tend to bring in advisors who are comfortable in both rooms.

Scrutiny is not going away. Regulators are getting more sophisticated. Financial institutions are getting more rigorous. The standard for what a well-run cannabis company looks like is moving, and messaging consistency is part of what that standard increasingly includes.

 

Move Over Flower, Pre-roll is King

By Brian Beckley
No Comments

Driven by innovation and convenience, pre-roll sales in 2025 not only had the strongest growth of any major category, topping $3.6 billion in sales and moving 383 million units, but supplanted flower as the most units sold for the first time in the industry’s history, according to a new report from Custom Cones USA.

It’s the fifth consecutive year that pre-rolls have outperformed the industry as a whole, growing revenues 9.8% year-over-year, well ahead of the 1.5% growth rate of the entire sector. On top of that, unit sales grew 18.6%, helping lead the category to a 15.9% market share.

In total, pre-rolls have seen by far the largest growth of any category over the past five years, driving growth for the entire industry, despite having the lowest average price point of any major category at just $9.18.

“Pre-rolls are no longer an afterthought,” said Harrison Bard, CEO of Custom Cones USA. “What started as a trim byproduct, pre-rolls have matured into a highly competitive, innovation-driven category where brands are winning through quality, scale, and smart branding.”

Drawing on point-of-sale data from 15 states collected by cannabis analytics firm Headset, as well as a survey of pre-roll manufacturers from around the country, the State of the Pre-Roll Market 2026 report shines a spotlight on this growing and important category, revealing what pre-rolls are selling, how they are being sold, and who is buying them.

 

Infused Pre-Rolls Dominate

Looking deeper at the numbers, the State of the Pre-Roll Market Report reveals that infused pre-rolls, which combine a concentrate with flower to boost potency and flavor, are driving the category’s growth.

In 2025, infused pre-rolls accounted for $1.68 billion in sales, or 47% of all pre-roll revenues, up from $1.44 billion the year before, the largest growth of a segment in the category.

However, looking at unit sales, the Hybrid-Single Strain segment is the most popular, selling 175.6 million units, well ahead of the 144.6 million units of second-place infused, however, the lower average price point brings their revenue total for the year to $1.3 billion.

Together, the Infused and Hybrid segments account for more than 84% of all pre-roll revenues and nearly 84% of all units sold.

 

Multi-Pack Ascendance

While pre-roll multi-packs have long been a growing section of product offerings, they absolutely dominated the sales charts in 2025.

Multi-packs saw their largest growth year ever, reaching a full 48.5% of pre-roll products sold. But the real impact can be seen on the top-selling product charts, where multi-packs accounted for 90 of the top 100 pre-roll products sold, up from 78 the previous year.

The most popular multi-pack format is the 2.5-gram 5-pack, generating $612 million, or about 17.2% of total pre-roll revenue and nearly 24 million units sold.

 

Who is Buying?

While they appeal to consumers from all generations, millennials are clearly the core audience, accounting for 43.9% of all pre-roll revenue, about $1.6 billion in sales.

And though males make up nearly 60% of all pre-roll buyers, millennial females sit clearly in the No. 2 spot, just behind their male counterparts but ahead of both Gen X and Gen Z men.

 

What’s the Future of Pre-Rolls?

Looking ahead, the State of the Pre-Roll Market Report predicts the category to continue to grow at industry-leading rates, with infused pre-rolls once again leading the way.

Using what they call a “conservative” growth estimate, the report predicts that pre-roll revenue will top $4 billion in 2026 and grow to more than $5.2 billion by 2030, though as more markets legalize, those numbers would be expected to grow further.

The report also specifically targets the Tri-State New York, New Jersey, Connecticut area for growth in the next year. New York showed the largest year-over-year category growth of any state in both revenue and unit sales, followed by New Jersey in both categories. Connecticut placed third in unit sales. Additionally, New Jersey is expected to open consumption lounges this year, again juicing pre-roll sales.

“It’s an exciting time to be in pre-rolls,” Bard said. “The category is constantly changing and growing, with innovation constantly pushing the whole sector in new and fun directions. It used to be something companies did with leftover product, but now, any business that is not looking to start or expand their pre-roll lines is leaving money on the table.”

 

Colorado Pushes to Normalize THC Beverages in Bars as Federal Pressure Mounts

No Comments

As federal policymakers move toward restricting hemp-derived cannabinoid products, a new state-level effort in Colorado is taking the opposite approach by moving to integrate low-dose THC beverages into mainstream hospitality.

A coalition led by Colorado-based attorney Brian Vicente, partner at Vicente LLP, has formed the Colorado THC Beverage Coalition and introduced legislation that would allow hemp-derived THC beverages—up to 10 milligrams per serving—to be sold and consumed in bars, restaurants, and event venues.

If successful, the bill would position Colorado alongside states like Minnesota and Tennessee, which have emerged as early leaders in normalizing hemp-derived THC beverages in social, alcohol-adjacent settings.

 

A Three-Tier System for THC?

At the core of the Colorado proposal is to treat THC beverages more like alcohol.

The legislation seeks to establish a regulated pathway for hemp-derived THC drinks to move through licensed distribution channels and into on-premise consumption environments. This model mirrors the three-tier alcohol system, creating clearer compliance standards while expanding access points beyond dispensaries.

For beverage brands, the implications are significant. Instead of being confined to cannabis retail, THC beverages could tap into existing hospitality infrastructure, unlocking new revenue streams for bars, restaurants, and event organizers.

“This is about meeting consumers where they already are,” Vicente has argued, emphasizing that low-dose THC beverages are increasingly viewed as an alternative to alcohol in social settings.

 

Why Minnesota Became the Model

Colorado’s effort draws heavily from Minnesota’s regulatory framework, widely seen as one of the most functional hemp THC markets in the U.S.

Since 2022, Minnesota has allowed the sale of low-dose hemp-derived THC edibles and beverages with defined potency limits, age restrictions, and testing requirements.

Notably, the state permits beverages containing up to 10 mg of THC per container, creating a standardized, sessionable product format that aligns with consumer expectations around alcohol.

This clarity has enabled breweries and beverage manufacturers to enter the category at scale, with many positioning THC drinks as a complementary or alternative offering to beer and spirits. Even mass retail such as Target stores in Minnesota are selling beverages by meeting the state’s licensing requirements.

 

The Federal Threat Reshaping the Market

A major federal policy change, set to take effect in November 2026, could upend the entire hemp-derived cannabinoid category.

The updated federal definition of hemp introduces a “total THC” standard and imposes a cap of just 0.3 milligrams of THC per container, effectively eliminating most existing THC beverage products.

Industry groups estimate that as much as 95% of current hemp-derived products could be wiped out under the new rules, with cascading effects on jobs, tax revenue, and investment.

This looming crackdown has created a paradox: while federal policy is tightening, states are experimenting with structured, regulated pathways that integrate THC beverages into existing consumer ecosystems.

Colorado’s push to expand access to hemp beverages is timely. In Washington, a bipartisan group of lawmakers, including Senators Rand Paul, Amy Klobuchar, and Joni Ernst, recently introduced the Hemp Safety Enforcement Act. This new bipartisan bill aims to give states a way to maintain control over intoxicating hemp products and potentially keep the category alive. Against that backdrop, state-level efforts like Colorado’s are taking on added importance, as regulators and industry stakeholders look to establish controlled, scalable frameworks for the sector.

 

Tennessee and the Rise of Alcohol-Like Regulation

Tennessee offers another model influencing Colorado’s approach.

Beginning in 2026, the state moved hemp-derived cannabinoid products under the oversight of its Alcoholic Beverage Commission, introducing stricter rules around potency, labeling, and distribution.

Regulating intoxicating hemp products through alcohol-style frameworks rather than treating them as unregulated wellness goods seems to be the most logical approach, one that increasingly requires compliance sophistication, supply chain discipline, and alignment with traditional beverage distribution systems.

 

A Market at an Inflection Point

The Colorado THC Beverage Coalition’s bill arrives at a pivotal moment for the industry.

On one hand, consumer demand for low-dose, sessionable THC beverages continues to grow, driven by wellness trends and declining alcohol consumption among younger demographics.

On the other hand, regulatory uncertainty—particularly at the federal level—is constraining long-term investment and product development.

States like Minnesota have demonstrated that regulated hemp THC markets can function safely and generate meaningful economic activity.

But without federal alignment, those markets remain vulnerable to disruption.

 

What This Means for Cannabis and Beverage Operators

For cannabis brands, the Colorado proposal could expand retail strategy beyond dispensaries into mainstream channels.

For alcohol and beverage companies, it’s an opportunity where THC-infused drinks could sit alongside beer, wine, and spirits in licensed venues.

And for policymakers, it raises the question of whether low-dose THC beverages should be regulated as cannabis, alcohol, or something entirely new.

 

Whether federal policy will allow that vision to materialize remains the defining question for the industry heading into 2026.

Operational Efficiency Is Driving the Next Phase of Cannabis Growth

By Ryan Hunter
No Comments

For years, the cannabis industry operated in an environment where expansion was the primary signal of success, and investors were excited to get involved. New markets opened, and rapid growth often took priority over efficiency. Companies could move quickly and sort out the details later, trusting that scale would eventually smooth things out.

That environment no longer exists, and in most ways, growth is now more challenging. Margins are tighter, investors are more selective, and competition has intensified. Those changes are forcing a closer look at how businesses actually perform beneath the surface to survive. Growing sales is crucial, but sustaining profitability and managing working capital over the long haul are essential to success. 

This shift tends to start with cost visibility. To survive and thrive, cannabis operators must understand their product unit economics and the variables that influence them. In a compressed market, small inefficiencies have a way of compounding. A slight increase in input costs or a mismatch in pricing strategy can quietly erode performance over the course of a quarter.

None of this is theoretical. It shows up in day-to-day decisions around production, sales, marketing, and where to invest resources.

Growth strategy is evolving alongside that reality. Expansion into new markets still carries long-term value, but it is harder to justify without the infrastructure to support it. Entering a new market introduces layers of operational complexity, and success depends on more than securing shelf space. Distribution, retail relationships, and localized execution all factor into whether a brand actually thrives in a new setting.

For operators looking to grow without expanding into new states, there is a noticeable shift toward getting more out of the markets where they already exist. That means paying closer attention to sell-through, tightening product assortments, and making sure marketing efforts translate into repeat purchases. A company with products that consistently perform in one market is often more valuable than one that appears in five states but struggles to gain traction.

Marketing efforts must also be approached with greater intention. A strong brand identity still matters, but it is only one piece of a larger system. The more relevant question is whether a brand creates enough familiarity and trust to influence a decision at the point of sale. This intention requires a strategic approach to the entire brand story and customer journey, from initial awareness through repeat purchase, and a willingness to refine each stage over time.

Pricing is another area where the shift is easy to see. As competition increases and consumers become more selective, pricing strategies are under more scrutiny. Discounting can move products in the short term, but it can also establish consumer expectations in ways that are hard to reverse while shrinking already-thin margins. Operators are spending more time considering how pricing aligns with brand positioning, cost structure, and long-term viability. There is a balance between staying competitive and maintaining enough margin to support the business.

Product strategy is tightening as well. In earlier phases of growth, it was common to expand SKUs in an effort to capture more shelf space and appeal to a wider range of consumers. Over time, that approach can create complexity across production, inventory, and distribution. A more focused assortment tends to be easier to manage and often performs more consistently. Fewer products, supported by clearer positioning, can lead to stronger outcomes than a broad lineup that is difficult to sustain.

There is also a cultural component to this shift that is less visible from the outside. Teams are being asked to operate with a higher level of accountability and coordination. Decisions that may have once been made quickly are now examined more closely, with a better understanding of how they impact margins, operations and retail performance. This can slow things down in the short term, but it often leads to more durable systems over time.

The retail environment adds its own layer of reality. Budtenders remain one of the most influential forces in the purchasing process. Their recommendations carry weight, especially when consumers are choosing between products that look similar on the surface. Time spent building real relationships between brands and retail staff at the store level tends to produce more consistent results than broader, less targeted efforts. There is also a practical side to this. Regular field marketing presence in dispensaries, direct feedback from staff, and a clear understanding of how products are being positioned all contribute to stronger execution. It is not complicated, but it does require consistency.

The industry is continuing to mature, and the expectations are rising with it. There is less room for inefficiency and less patience for strategies that rely on momentum alone. Companies that stay close to their numbers, their customers, and the realities of the retail environment are finding a more stable footing. It is a more demanding phase for cannabis, but it is also one that rewards clarity and consistency in a way the earlier years did not.

 

Commercial Insurance Has Failed Cannabis. Here’s What’s Next

By Patrick Johnston
No Comments

In 2024, Colorado state officials announced a recall affecting 172 stores across the state. Batches of flower and pre-rolled joints from one grower exceeded mold and yeast limits. The losses were immense, including for companies that thought the money they were paying each year to insurance companies for premiums would provide, only to discover that coverage wasn’t there when it mattered most.

This is not an isolated story. Cannabis operators across the country pay high premiums for policies riddled with exclusions, resulting in enormous uninsured exposure to areas including product recall, regulatory action, business interruption, cyber liability, and directors and officers coverage. Section 280E makes every uninsured loss even more painful, with effective tax rates that can exceed 60 percent of gross income. The commercial insurance market has failed this industry structurally. Some operators are looking at captive insurance as a structural solution.

What Is a Captive Insurance Company?

A captive is a licensed insurance company that your business owns. Rather than paying premiums to a carrier that keeps the underwriting profit, the promise of a captive is that owners can accumulate reserves, keep the insurance company’s profit, and write policies covering risks that commercial markets refuse to underwrite. As such, it is worth looking at the pros and cons of forming a captive.

 

The Pros

Coverage for gaps no commercial carrier will fill. Control over your risk program, on your terms, based on your coverage and philosophy. Financial upside: underwriting profit stays in your business, not your carrier’s. Stability against volatile premium markets. Risk management discipline that improves your operations over time. And a powerful signal to investors and acquirers that your business is built with institutional-grade infrastructure, which is a meaningful advantage in capital raises and exit valuations.

 

The Cons                                                                                                                              Captives are not right for every operator. A single-parent captive typically requires $300,000 to $500,000 or more in annual premium spend (though this number may be much lower in the cannabis space). Group captives are accessible at much lower thresholds, sometimes $50,000 to $150,000. Upfront capitalization is required and varies by structure. This is a long-term strategy, not a quick fix, because benefits compound over years, not quarters. Ongoing regulatory compliance is real, though the right partner, such as 3F Captive Services, manages everything on behalf of clients.

 

Who Is a Good Candidate?

Multi-state operators with significant insurance spend. Businesses with stable, recurring cash flow. Operators frustrated by commercial coverage gaps, a pain known most acutely by those who have experienced an uninsured loss. Companies are thinking five to ten years ahead, including those positioning for a capital raise or exit.

 

Who Is Not Ready Yet?

Very early-stage operators with minimal insurance spend. Businesses with constrained liquidity. Companies with unresolved risk management or compliance problems. Operators looking for a quick tax benefit rather than a genuine insurance program. If this describes you today, the captive conversation is worth revisiting as your business matures.

 

Addressing the Common Objections

“It’s only for big companies.” Not anymore (group captives have significantly changed the economics of entry). “The IRS will come after me.” Properly structured captives are written into the tax code and have consistently withstood IRS scrutiny. “My broker handles this.” Most commercial brokers are not captive specialists (and often know nothing about captives), and their compensation model creates a structural disincentive to recommend one.

 

How the Process Works

Stage 1: An exploratory conversation. For example, 3F offers interested partners a no-fee assessment. Stage 2: A comprehensive feasibility study, including independent actuarial pricing of every policy, multi-year financial modeling, and full program design. Stage 3: Formation and licensing. Stage 4: Ongoing management, including actuarial reviews, regulatory filings, claims, and governance.

Before the next recall, claim, or regulatory action tests your coverage, it’s worth asking a simple question: Are you truly protected? A captive is not a fit for everyone, but for operators with the scale, discipline, and long-term mindset, it can turn risk into a strategic asset rather than an ongoing expense. The cost of doing nothing is often invisible, until it isn’t. The operators in Colorado learned that the hard way. The better path is to evaluate your structure now, while you still have the ability to choose it

Learn more at: 3F Captive Services — Cannabis Industry

Cannabis Biopharma Company Enters Fight Over CMS Hemp Pilot

By Pam Chmiel
No Comments

A cannabis biopharma company is seeking to join the federal lawsuit challenging the Centers for Medicare & Medicaid Services’ (CMS) new hemp and CBD pilot program, adding a pharmaceutical voice to a government-sanctioned program allowing untested and unregulated hemp products into the marketplace.

MMJ International Holdings and its subsidiaries, MMJ BioPharma Labs and MMJ BioPharma Cultivation, have moved to join the lawsuit filed by Smart Approaches to Marijuana (SAM) and other plaintiffs against CMS and federal health officials.

The move comes after the court denied the plaintiffs’ emergency request for a temporary restraining order on March 31, allowing the program to launch while the litigation continues. The court is scheduled to hold a preliminary injunction hearing on April 20.

SAM and its co-plaintiffs filed suit on March 30 in the U.S. District Court for the District of Columbia seeking to block CMS’s new Substance Access Beneficiary Engagement Incentive, or BEI. The optional Innovation Center program allows participating organizations to discuss eligible hemp-derived products with Medicare beneficiaries and, under the model’s rules, furnish them for symptom management.

CMS has argued that the BEI is not a broad Medicare coverage expansion and does not directly reimburse hemp or CBD products in the same way as a traditional Medicare benefit.

SAM has a long history of opposing cannabis reform and has consistently fought state legalization measures, cannabis banking legislation, and broader federal recognition of cannabis-derived products. In the current case, SAM argues that CMS created the pilot without going through the formal notice-and-comment process required under the Administrative Procedure Act.

The plaintiffs also contend that the program conflicts with the Federal Food, Drug, and Cosmetic Act and with CMS’s own previous position that cannabis products are not eligible for Medicare coverage.

At the center of the case is a larger policy debate over whether CMS can use an innovation model to create a limited access pathway for hemp-derived CBD products before the FDA has approved them as prescription drugs. Supporters of the pilot say it could improve access for patients with chronic conditions. Opponents argue it effectively endorses unapproved substances without sufficient scientific or legal safeguards.

MMJ’s position differs from SAM’s broader anti-cannabis stance. The company has publicly argued that cannabinoid products should move through the FDA’s botanical drug pathway before they receive federal reimbursement or endorsement.

According to court filings, MMJ describes itself as a developer of plant-derived cannabinoid therapeutics and says it has spent years pursuing cannabinoid drug development for Huntington’s disease and multiple sclerosis. The company has repeatedly criticized the CMS pilot in a series of March press releases, warning that the government is moving toward reimbursement before scientific evidence and FDA review are complete.

In one March 27 statement, MMJ CEO Duane Boise said, “A soft-gel is a medicine; a gummy is a snack.”

Federal defendants do not oppose MMJ joining the lawsuit. However, they are asking the court to reject the plaintiffs’ request to delay the briefing schedule and postpone the April 20 hearing.

The government argues that MMJ has been publicly criticizing the BEI since early March and was aware of the lawsuit no later than March 31, when the company issued a press release linking directly to the complaint. Yet MMJ did not seek to join the case until April 7, less than 48 hours before the government’s opposition brief was due.

According to the defendants, the timing suggests MMJ is being added not because of any urgent injury, but because the court raised questions during the March 31 hearing about whether the original plaintiffs have legal standing, unlike MMJ Holdings, which has invested millions over several years to build its cannabinoid drug development program.

MMJ sees the issue very differently. The company argues that it has spent years and millions of dollars pursuing the FDA botanical drug pathway, conducting research, seeking federal approvals, and building cannabinoid therapies for serious conditions such as Huntington’s disease and multiple sclerosis. From MMJ’s perspective, the CMS pilot creates an uneven playing field by allowing hemp-derived products to reach Medicare beneficiaries through a federal program without first meeting the same FDA standards that MMJ has been required to satisfy.

MMJ has repeatedly argued in public statements that the BEI could undercut companies investing in formal drug development while opening the door to products that have not undergone the same clinical testing, manufacturing controls, or regulatory scrutiny. In that sense, MMJ is not opposing cannabinoid medicine itself. Rather, it argues that if the federal government is going to support cannabinoid products, it should do so through the same approval process that pharmaceutical developers have been required to follow.

The filing further suggests that the government may contest MMJ’s public statements that the FDA has accepted its investigational drug applications and that it has a federally authorized Huntington’s disease program. Defendants said they may seek permission to submit confidential declarations under seal to address those claims.

Defendants additionally argue that MMJ cannot demonstrate irreparable harm because its alleged injuries, including reduced investor confidence, future competitive disadvantage, and lost earnings, are speculative and tied to products that remain years away from commercialization.

The government contends that delaying the case would create more uncertainty around the newly launched pilot program and could discourage healthcare organizations from participating while the lawsuit remains unresolved.

The court has not yet ruled on whether MMJ may join the case or whether the April 20 hearing will proceed as scheduled.

This Company Wants Your Dirty Grow Air Filters

By Pam Chmiel
No Comments

It is not uncommon for industries outside cannabis to adapt their technologies to address challenges unique to this maturing sector. American Air Filter International (AAF) is one such company, bringing decades of experience in air filtration for critical environments such as pharmaceutical clean rooms, food manufacturing facilities, hospitals, and even jet fuel applications.

According to Nikki Sasher, a microbiologist and head of the Clean Air Laboratory at American Air Filter International, cannabis cultivation facilities face a host of airborne risks, with mold at the top of the list. Once mold enters a grow, the financial consequences can escalate quickly, from destroyed harvests to failed compliance tests. Beyond lost revenue, there are serious biosecurity and worker health concerns tied to inhaling mold spores. In cases where Aspergillus reaches the lower lungs, Sasher notes, the mold can colonize and continue to propagate inside the body.

In 2022, a Trulieve employee died after suffering an asthma attack linked to prolonged exposure to ground cannabis dust in her workplace. Following the incident, OSHA cited the company for failing to implement adequate dust control measures, including proper ventilation and the use of HEPA filtration on vacuum equipment.

Health officials and researchers have since identified a range of respiratory hazards common in cannabis cultivation and processing facilities. These include mold and fungi, pesticides and chemical residues, and terpenes and other volatile organic compounds. Many of these compounds create strong odors and can interact with other airborne agents to form irritants that pose both acute and long-term health risks.

These incidents present a growing safety and occupational health challenge within the rapidly expanding cannabis industry, one that is increasingly difficult to ignore.

 

Filtration Is Not Yet an Industry-Wide Standard

Despite these risks, comprehensive air filtration is far from universal across cannabis operations. Sasher explains that geography plays a role. Drier climates, such as Nevada, tend to experience fewer mold issues than states like Michigan, Colorado, and New York, where temperature swings and higher humidity create ideal conditions for microbial growth.

Greenhouses, in particular, present ongoing challenges due to constant water activity created by irrigation systems and plant respiration. Sasher frequently sees mold outbreaks occur in drying rooms, where freshly harvested plants retain moisture. If mold is already present in the room or circulating through the air handling system, spores can easily settle onto wet plant material. Drying rooms are typically smaller and more enclosed than other areas of a cultivation facility, making them among the highest-risk environments in the entire operation.

The use of high-tech air filtration systems has only been around for less than twenty years; some sectors still need to catch up to the standards required in food and pharmaceutical manufacturing, such as adhering to minimum efficiency ratings, change-out intervals, locations, first-in, first-out process flow, and hazard analysis.

 

AAF Wants Your Dirty Filters

To spark greater industry awareness around the benefits of proper air filtration, American Air Filter International has launched a free filter-testing program for cannabis cultivators. Through the initiative, growers are invited to submit used air filters from their facilities, allowing AAF to analyze real-world contamination and build a clearer picture of airborne risks across the sector.

According to Sasher, the filters are evaluated for efficiency, resistance, and pressure drop, as well as downstream mold capture to determine what is circulating in process-facing air. AAF also uses scanning electron microscopy to examine the filter media at the microscopic level, revealing how particulate matter, such as mold spores, dust, and plant material, accumulates and impacts performance over time.

To expand the scope of the research, AAF has partnered with Dr. Alison Justice of the Cannabis Research Center. Together, the organizations are collecting data that will help quantify air quality risks and translate them into practical guidance for cultivators.

 

Exposed Areas in Cultivation Facilities

Modern cultivation facilities rely on complex climate control systems that include HVAC units, humidifiers, and dehumidifiers, each requiring filters with different efficiency ratings. Sasher notes that many of the filters currently in use fall below recommended standards, a gap AAF hopes to validate through its research partnership with the Cannabis Research Center. The goal is to help growers better understand which efficiency ratings are needed in different parts of the facility to meaningfully reduce risk.

Mold spores, Sasher emphasizes, are ubiquitous. Air filtration is only one engineering control among many, alongside practices such as room fogging and sanitation protocols. Once mold is introduced into a facility, it can be extremely difficult to eliminate.

One uniquely cannabis-specific challenge is the presence of trichomes. These microscopic, sticky particles easily become airborne during cultivation and processing, where they accumulate on filters, restrict airflow, and degrade filtration performance. As part of the testing program, AAF is evaluating how sticky versus non-sticky particulate matter affects filter lifespan and efficiency. The findings could help growers better determine optimal change-out schedules and identify operational factors that accelerate filter failure.

For Sasher, biosecurity is the most compelling reason to invest in proper air filtration. Through its collaboration with Dr. Justice, AAF aims to merge air quality science with cultivation expertise to produce data-driven research that the industry currently lacks. The partnership is focused on developing practical guidance around filtration standards, airflow management, preventative maintenance, and standard operating procedures, areas where formal benchmarks are still largely absent.

Looking ahead, the research team plans to identify pilot cultivation sites where filtration can be evaluated directly within active grow environments. By measuring conditions before and after filtration upgrades, they hope to quantify the impact on contamination levels and overall plant health. Sasher points to similar work in agricultural settings, where improved air filtration reduced livestock mortality rates by double digits, delivering measurable economic gains.

While cannabis-specific results will take time, Sasher believes the approach has the potential to deliver actionable insights that the industry can implement quickly. Even cultivators who are not using AFF products, she says, will be able to apply the findings to strengthen biosecurity, protect workers, and reduce costly crop losses.

 

Beyond Particulates: Managing Odors and Emissions

While much of the focus in cultivation facilities centers on particulate filtration, Sasher emphasizes that molecular, carbon-based filtration plays an equally important role in cannabis operations. These systems are designed to scrub gases and volatile compounds from outgoing air, an increasingly critical requirement as cultivation and extraction facilities operate closer to residential and commercial neighborhoods, and as consumption lounges come online.

In cannabis, terpenes are responsible for strong odors, as well as gases released during extraction processes that use hydrocarbons such as butane. These gas-phase emissions are subject to strict environmental and safety standards, particularly in regulated markets where operators are required to control odors and limit volatile organic compound emissions.

American Air Filter International addresses this challenge through a dual filtration approach. Pleated particulate filters support plant health and worker safety by capturing airborne contaminants within the facility, while carbon-based molecular filtration systems target gas-phase pollutants before exhaust is released outdoors. Together, these systems help operators remain compliant with local regulations while reducing environmental impact.

Sasher also points to a key differentiator in AAF’s gas-phase filtration program: the ability to test and monitor the remaining life and gas-holding capacity of carbon filters. By measuring remaining adsorption capacity, AAF provides operators with data-driven guidance on when to replace filters. This reduces guesswork, prevents performance failures, and supports more predictable maintenance schedules.

 

As regulators, communities, and workers place increasing scrutiny on air quality, molecular filtration is becoming a necessary extension of cultivation and extraction infrastructure rather than an option. As the industry inches toward rescheduling and ultimately descheduling, GMP-certified facilities will be required, and with that comes clean-air filtration.

CONTACT NIKKI SASHER IF YOU WOULD LIKE TO PARTICIPATE IN THE FREE AIR FILTER STUDY: nsasher@aafintl.com

Listen to Nikki Sasher’s full interview on the Innovating Cannabis Podcast.

Inventory Is the Biggest Cash Flow Problem in Cannabis

By Pam Chmiel
No Comments

All roads in cannabis retail lead back to inventory.

Retail cannabis operators across the country are being squeezed by razor-thin margins, declining cash flow, and a growing inability to pay vendors on time. The culprit is often not weak sales or lack of demand. It is mismanaged inventory.

Inventory is the foundation on which the entire business is built. It is the single biggest driver of cash flow, profitability, and retail performance. Yet many retailers are still carrying too much product, reordering too late or too early, and failing to connect inventory decisions to merchandising, promotions, sell-through, and actual consumer demand. Brands feel the impact too. They cannot accurately forecast production, plan manufacturing schedules, or maintain healthy warehouse levels when retailers are not managing inventory effectively.

Excess inventory locks up cash, slows vendor payments, compresses margins, and creates pressure to discount. Too little inventory creates out-of-stocks, lost sales, frustrated customers, and strained brand relationships. In either scenario, poor inventory management undermines every other part of the business.

Many cannabis retailers are far exceeding the 30-day product turnover goal needed to keep cash flowing and inventory fresh. Some operators are sitting on more than $150,000 in overstock every month, cash that could otherwise be used to pay vendors, invest in marketing, open new locations, or strengthen operations.

 

The Buyer Problem

Even seasoned buyers from more mature industries struggle with the unique challenges cannabis brings to retail: adjusting consumer preferences, fast-moving product trends, oversaturated categories, an overwhelming number of SKUs, regulatory complexity, and shelf life concerns. A product that sold well six months ago may suddenly stall. Yet many retailers still make purchasing decisions based on instinct rather than data.

In alcohol, grocery, beauty, and traditional CPG, Inventory is managed by a team. Retailers have buying offices staffed with merchandise planners, category managers, inventory analysts, and purchasing executives, each role designed to optimize assortment, forecast demand, improve margins, and keep inventory moving.

Cannabis rarely operates that way.

In many cases, retailers hand the buyer role to a senior budtender or owner because “they know weed.” But knowing cannabis and managing millions of dollars in inventory are two very different skill sets. The buyer is responsible for purchasing, forecasting, menu management, vendor relationships, promotions, cash flow, and category strategy. It is one of the most important roles in the business, yet in cannabis, it is often treated like an afterthought.

Without formal inventory training, many buyers reorder based on instinct or a walk through the vault to see what looks low. The result is overstock in some stores, out-of-stocks in others, and cash trapped in products that are not moving.

 

Inventory Is Frozen Cash

Every product sitting in a vault, warehouse, or on a shelf is money that cannot be used elsewhere. Overstock creates a domino effect: vendors get paid more slowly, retailers face pressure to discount, margins shrink, and products age on the shelf.

The fix starts with insights around sell-through. Buyers need to define the sell-through rate for every category and use that data to guide purchasing cadence decisions. Track daily, weekly, and monthly changes in consumer demand, then connect that sell-through data to reorder timing, manufacturing timelines, warehouse inventory, and future promotions.

The goal is to maintain the right amount of inventory, at the right time, in the right store, in the right category.

 

Don’t Fall for the Discount Trap

When retailers or brands are overloaded with inventory, the first instinct is often to discount. That instinct is expensive.

A product that is not moving gets marked down. The retailer then spends money to promote the sale. Loyalty rewards or additional discounts get layered on top. By the end, the business has sacrificed margin in three different ways: the discount itself, the cost of marketing the promotion, and the cost of loyalty incentives. Repeated discounting also trains customers to wait for deals and lowers the perceived value of the product.

In many cases, the product may not have needed a discount at all. It may have been priced incorrectly, merchandised poorly, buried on the menu, or placed in the wrong store. Without understanding why a product is not moving, retailers often reach for cutting the price.

 

Diagnosing Slow-Moving Inventory

Before cutting the price or discontinuing an item, retailers and brands need a framework for diagnosing why the product stalled.

Start with the purchasing decision. Was the category already overcrowded before the product arrived? Many retailers continue adding nearly identical products to saturated categories without asking whether there is room for another option. Take sleep gummies: how many SKUs making the same promise does one store really need? The issue may not be that the product is bad. The issue may be that too many similar products are competing for the same customer.

Next, examine merchandising. Was the product placed where shoppers could actually see it? Did it have the right shelf placement, signage, and number of facings? A quality product can easily disappear if it is buried in the vault, hidden on a bottom shelf, or missing from the online menu.

Pricing is another common culprit. A product priced too high relative to competitors loses ground in saturated categories. A product priced too low may unintentionally signal lower quality or leave no room for future promotions.

Education also matters. Budtenders remain one of the strongest influences on purchasing decisions in cannabis. If staff do not know the product, do not understand its differentiation, or are not confident recommending it, the product will not move.

Before taking action, retailers and brands should ask:

  • Is the product priced correctly?
  • Is it merchandised properly and visible on the shelf and menu?
  • Is it consistently in stock?
  • Are budtenders recommending it?
  • Is the category already overcrowded?
  • Is the product in the wrong store or market?
  • Does the consumer understand why this product is different?

Only after answering those questions should a retailer decide whether the product deserves less shelf space, a new strategy, or removal from the assortment.

 

Fewer SKUs, Better Performance

More products appear to create more choice and more opportunity. In practice, too many SKUs make inventory harder to manage, confuse the consumer, and weaken overall performance.

As the assortment expands, inventory becomes fragmented across dozens of products. Retailers place smaller orders for each SKU, slowing sell-through and increasing the likelihood that products sit on shelves too long. Cash gets spread across too many items while budtenders struggle to stay knowledgeable about an ever-growing menu.

The strongest operators regularly review their assortment and make difficult decisions about what deserves to stay. At least once a month, retailers should evaluate:

  • The top 20 percent of SKUs driving the majority of revenue and margin
  • The bottom 20 percent of products that are not moving
  • Redundant products in oversaturated categories
  • Products that no longer reflect consumer demand
  • Items that consistently require heavy discounts or promotions to sell

The goal is not to carry fewer products for the sake of simplicity. It is to build a more intentional assortment that supports stronger sell-through, healthier margins, and better cash flow.

 

Inventory Should Match the Store, Not the State

One of the biggest mistakes cannabis companies make is pushing the same assortment into every location. Even stores a few miles apart can perform very differently.

One store may attract price-sensitive shoppers looking for value flower, high-potency products, and lower-priced concentrates. Another may cater to consumers seeking wellness-oriented products, premium edibles, beverages, or topicals. Tourist-heavy markets often support more novelty products and a wider assortment. Neighborhood stores typically perform better with a smaller, more focused selection.

Yet many operators still purchase inventory at the state or company level and push it out uniformly. This approach will leave one store overloaded with products that are not moving, while another runs out of what its customers actually want.

The best retailers build inventory plans at the store level. They look at what is selling in each location, which categories are gaining momentum, what price points resonate, and how quickly products move in that specific market. Inventory planning should reflect the realities of each store, not a one-size-fits-all strategy.

 

The Metrics Every Retailer and Brand Should Track

Inventory management cannot rely on a buyer’s gut instinct. Retailers and brands need a consistent set of metrics to understand what is moving, what is slowing down, and when to reorder.

Days of supply on hand measures how long the current inventory will last based on the current rate of sales. Carrying 60 days of inventory in a category that only needs 30 ties up cash unnecessarily. Carrying less than a week’s worth risks stockouts before the next delivery.

Sell-through rate tracks how quickly products move after arriving in the store. A product may sell well eventually, but if it takes too long to move, it still creates a cash flow problem.

Velocity shows how many units of a specific product sell over a given period, daily, weekly, or monthly. Tracking velocity by SKU identifies which products deserve additional inventory and which should be reconsidered.

Reorder cadence reveals patterns in purchasing behavior. Understanding how frequently products are reordered makes it easier to forecast demand, avoid stockouts, and plan more accurately.

Out-of-stock frequency flags when high-performing products repeatedly sell out, signaling lost revenue and potential customer churn to competing brands.

Aging inventory should be monitored closely. Products that sit too long become harder to sell and typically end up discounted.

Gross margin by product is often overlooked. Some products generate strong sales but deliver weak margins once discounts, promotions, and loyalty rewards are factored in. Others sell more slowly but are significantly more profitable.

Promotional lift measures whether a sale or campaign actually increased sell-through or simply subsidized purchases that would have happened anyway.

These metrics should be tracked by individual store, by category, by SKU, and before and after promotions. That is how operators begin to understand what is really driving performance and where inventory decisions need to change.

 

AI, Forecasting, and Predictive Inventory Management

Advanced analytics and AI tools are helping cannabis companies move from reactive inventory management to predictive planning. Instead of only looking at what sold last month, these systems identify patterns and forecast what is likely to happen next.

AI can help retailers and brands:

  • Predict which products are beginning to lose momentum
  • Forecast future demand by store and category
  • Flag stores that consistently order too late or overbuy
  • Detect accounts most at risk of going out of stock
  • Recognize shifts in consumer preferences before they become obvious
  • Determine which promotions are actually driving profitable sales
  • Improve delivery routes and distribution planning

For example, a product may still appear healthy on the surface, but its weekly velocity may have started declining across several stores. Predictive tools can flag that slowdown early, giving the retailer time to adjust pricing, merchandising, or purchasing before the product becomes dead inventory.

 

The Retailer-Brand Relationship: Stop Operating in Silos

Many inventory problems happen because retailers and brands are not sharing enough information.

Retailers often know exactly which products are slowing down, which stores are running low, and which categories are overperforming. Brands may know when production capacity is tightening, when a new product launch is coming, or when a supply issue could affect future inventory. Too often, those insights stay separate. Reorders happen too late, overstock builds in one location while another store runs short, and both sides end up reacting instead of planning.

The strongest operators are moving toward a more collaborative approach. Instead of communicating only when there is a problem, retailers and brands should regularly review:

  • Sell-through by product and location
  • Reorder timing before inventory becomes critical
  • Upcoming promotions, seasonality, and new product launches
  • Which stores or accounts are likely to need additional support

A retailer may see that a particular product is suddenly accelerating in one region. A brand may know that a production delay could create shortages in the coming weeks. Sharing that information earlier allows both sides to make better decisions.

 

What Best-in-Class Inventory Management Looks Like

The most sophisticated cannabis operators treat inventory as a strategic function, not a back-office task.

A best-in-class retailer or brand:

  • Reviews inventory performance every week
  • Removes or reduces slow-moving SKUs every month
  • Maintains leaner inventory levels instead of stockpiling product
  • Forecasts demand by individual store, not just by state or region
  • Aligns purchasing, merchandising, and promotions
  • Uses sell-through and velocity data to guide decisions
  • Works closely with key retail or brand partners
  • Identifies problems before they become costly
  • Treats inventory management as a leadership responsibility

The goal is not simply to keep shelves full. It is to keep the right products in the right stores at the right time, while using as little working capital as possible.

 

Inventory is one of the biggest levers cannabis companies have to improve cash flow, margins, and overall performance. The tried-and-true systems from more mature industries exist and are ready to be adopted. Operators that put them to work to right-size costs and protect margins will be the ones best positioned to survive and grow.

 

 

 

 

 

 

 

The Third Exit Path for Cannabis Founders

By Darren Gleeman
No Comments

For many cannabis founders, the exit problem is not finding the right buyer. It is that there are barely any buyers at all. The field is narrow, capital is tight, and the strategic buyers that do exist are rarely showing up with clean cash offers. More often, founders are being asked to accept low valuations, seller paper, stock in the buyer, or some other compromise that falls short of a real exit.

That leaves owners in a bad spot. They can sell on terms they do not like and watch the company they built get absorbed into a larger platform. Or they can keep running the business and hope the market improves. Neither is a strong answer for a founder who wants liquidity now.

For years, the industry has told itself a familiar story. Survive the chaos, build something real, wait for institutional capital, and eventually a good buyer will show up. It is a nice story. It just has not been true for most operators.

Cannabis does not have a deep buyer universe. 

Most private equity firms have stayed away from plant-touching companies because there is no clear exit path. Most large strategic buyers have their own capital constraints, which means they buy selectively and often on terms that shift risk back to the seller. At the same time, 280E has drained cash from otherwise solid businesses, making it harder for founders to wait around for a market that may or may not improve.

That is why so many owners have been stuck in the same position for years: they have built valuable businesses, but when they want liquidity, the options are limited, and the terms are often weak. “Hold on, and the buyers will come” is not much of a plan.

In a strategic sale, the business usually gets folded into the buyer’s system. 

That means integration, overlap, and eventually cuts. Redundant roles are eliminated. Decisions get centralized. The team that built the business often does not survive the transition intact, not because they did anything wrong, but because that is how acquisitions work.

That is especially important in cannabis because so much of a company’s value sits with the people who know how to run it. Licenses matter. Facilities matter. But so do the founders, operators, and key managers who understand compliance, vendor relationships, local markets, and the day-to-day realities of staying alive in a difficult industry. A buyer can acquire the company, but it cannot instantly replace the people who made it work.

The Independent Buyout is the savior

Most founders do not even know there is another path. In cannabis, the conversation is usually framed as either selling your company to a strategic buyer or keeping it going. But there is a third option: selling shares to an employee ownership trust through an ESOP. It is called an “Independent Buyout” because that is what it actually is. The founder gets liquidity. The company stays independent. No private equity. Leadership stays in place.

The process is more straightforward than most people think. The company is valued, the purchase price is negotiated, and the founder sells some or all of the stock to the trust. In most cases, the founder receives cash at closing and seller notes for the balance. The company then uses its future cash flow to pay down the transaction over time. The important difference is that the buyer is not a strategic acquirer looking to absorb the company. The buyer is a trust set up for the employees, which allows the company to keep operating as its own business.

An Independent Buyout gives founders flexibility and tax breaks

They do not have to sell everything at once. A minority sale can allow an owner to take meaningful liquidity off the table while continuing to run the company and keeping future upside. For a founder who has spent years reinvesting earnings back into the business and wants some personal liquidity without walking away, that matters.

There is also a tax advantage that is hard to ignore in cannabis. A company that becomes 100% ESOP-owned can operate free of federal and state income tax. In practical terms, that means cash that would have gone out the door in taxes can instead be used to pay down debt, support operations, and fund growth. In this industry, that is a major shift.

One of the biggest differences in an Independent Buyout is that leadership usually stays in place. That matters because cannabis businesses are not easy to hand off. Much of the knowledge that keeps the company running is sitting inside the heads of the people already there. When those people leave, performance often suffers at exactly the moment stability is needed most. An Independent Buyout helps avoid that disruption by keeping experienced leadership in the business after the transaction closes.

This is not for every company. If a founder wants a clean break and there is no leadership team to keep running the business, a traditional sale may be the better route. But for founders who want liquidity without handing the company over to a weak buyer on weak terms, the Independent Buyout is a real alternative.