Tag Archives: Focus Article

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.

 

An MSO’s Perspective on the New York Market

By Pam Chmiel
No Comments

At the recent Business of Cannabis event in New York, Robert Sciarrone, Chief Revenue Officer at Curaleaf, shared an MSO’s insider view on why he believes New York is poised to become the best cannabis market on the planet.

Sciarrone began by reflecting on his early years as a cannabis-focused venture capitalist. Through his firm, Measure 8 Partners, he has deployed more than $550 million across 20-plus cannabis companies globally, including dispensaries, delivery services, and technology platforms, with investments spanning California, Arizona, Nevada, Canada, and Europe.

After joining Curaleaf two and a half years ago, recruited by Executive Chairman Boris Jordan, Sciarrone transitioned from investor to operator, now overseeing revenue across 18 states in both retail and wholesale. He admitted the operational grind has given him a new respect for the business side of cannabis, but emphasized that passion for the plant and its customers remains the heart of the industry.

Looking back on the “freewheeling” investment era of 2019, when $100 million deals were being done daily, Sciarrone contrasted that speculative period with today’s market. “California’s day is over,” he declared, suggesting that the West Coast market’s oversaturation and regulatory struggles have created space for New York to lead. With its cultural influence, economic strength, and growing consumer sophistication, Sciarrone believes New York can set the standard for how cannabis culture and business shape the global industry.

As a born-and-raised New Yorker, Sciarrone expressed deep pride in being part of that evolution: “It’s my passion to be here and watch this market unfold.”

 

Curaleaf’s Early Bet on New York

Sciarrone highlighted Curaleaf’s early commitment to the New York medical market. The company was among the first Registered Organizations (ROs) to invest heavily in infrastructure, opening four medical dispensaries and building a state-of-the-art cultivation facility in Ravena, just south of Albany, in 2018. “It’s one of the nicest cultivation centers I’ve seen,“ he said, noting that Curaleaf “believed in New York early.”

However, as the state prepared to transition to adult-use, Sciarrone recalled a divide that formed between corporate medical operators and new entrants under the CAURD program. “The market was divided, and it never should have been,“ he said. Fragmentation, he argued, weakened the industry’s collective voice at a time when it needed to work together to navigate taxes, regulations, and constant policy changes.

Today, Sciarrone sees signs of progress. “The market is starting to slowly come together,“ he said, adding that Curaleaf’s approach in New York is focused on wholesale partnerships with other retailers.

He also acknowledged that Curaleaf had to earn back credibility on product quality. “When I came in, Curaleaf didn’t have a lot. People probably remember that our product quality was lacking,“ he admitted. Like many MSOs in the early days, Curaleaf had relied on scale and storefronts to drive sales. But as the market matured, so did the company’s mindset. “We’ve had to think critically about our brands, about what we’re putting in the jar—the genetics, the nose, the story,“ Sciarrone said.

 

“We’ve had a complete 180 in Curaleaf’s journey, and it started with our efforts in New York.”

 

As operators unite around shared goals of keeping stores open, expanding access, and stabilizing supply, Sciarrone said New York’s cannabis industry is beginning to find its footing. He believes collaboration between the different groups has made it one of the fastest-growing and healthiest markets in the country.

 

“If we stay the path,” he concluded, “New York will be the biggest cannabis economy in the United States.”

 

The Potential of New York Brands

Sciarrone also shared his perspective on the potential of New York cannabis brands. He noted that while West Coast brands were once expected to dominate, consumer preferences differ by region. New Yorkers are proud of their local products, and homegrown brands have a strong story that resonates with consumers, budtenders, and store owners.

 

“California brands have cachet, but we have our own stories to tell in New York,“ he said.

 

While the consistency and quality of California brands give them an advantage in some markets, Sciarrone believes that as New York cultivators and operators collaborate, local brands will thrive. He highlighted that formulated products, such as edibles and beverages, may be one area where California brands see success, but in flower, New York brands have the edge.

 

“The more that cultivators open up their doors for brand partnerships, the more opportunity there is for some really great brands to merge, and we will see true New York brands make a run at it,“ he said.

 

Track and Trace, the Illicit Market, and the Path Forward

Sciarrone also addressed the upcoming New York track-and-trace system, expected to be implemented in early 2026. He sees it as a crucial step for a fair and regulated market. “Anybody operating in New York or any regulated market should be operating with a license,“ he said. Without track and trace, unlicensed operators have easy access to the market, avoiding taxes and regulations, which undermines legitimate businesses.

The system, he explained, will provide relief to licensed operators, including microbusinesses, microprocessors, and outdoor farms, by helping them move products more efficiently and transparently. It will also give consumers confidence in the origin and safety of the cannabis they purchase. While he acknowledges that some will try to work around the system, he emphasized that track and trace is a necessary step toward maintaining a healthy, fair, and thriving market.

 

“Listen, it’s a step in the right direction,“ he said. “It will help us keep a really great economy going and prevent giving people a free swing in the market.”

 

Price Compression and Market Equilibrium

On the topic of pricing, Sciarrone noted that predicting supply and demand in New York is challenging. The market is growing rapidly, but price compression is a reality in a sector where cannabis prices are not regulated. “Price is going to come down,“ he said, and any market that expects stable high prices has never existed because supply, investment, and competition constantly influence it.

He emphasized the importance of building confidence among local operators. Micro and outdoor farms in New York are producing good-quality products. As the local supply base stabilizes without too much out-of-state competition, operators may feel more comfortable investing in cultivation and expanding capacity. “We’re hopeful that people will see it as investable,“ he said. Curaleaf itself continues to invest carefully, weighing expansion decisions against market uncertainty. Stabilization of supply, he believes, will ultimately support a healthier, long-term market.

The Hemp Equation

Sciarrone also addressed the emerging hemp space, where Curaleaf has begun experimenting with beverages and a small retail presence in Florida. While he does not oversee the hemp business directly, he emphasized its significance and complexity. The hemp market has reached $30 billion in value, growing faster than the regulated cannabis channel. It is widely available in convenience stores and major retailers, which means it is attracting new consumers who might otherwise enter the regulated market.

 

“The hemp channel is stealing our new customers,“ Sciarrone said.

 

Many consumers who are trying cannabis for the first time are turning to hemp beverages and edibles instead of licensed dispensaries. Large investments and strong lobbying by farmers have accelerated this growth, creating a reality that cannot simply be legislated away.

Sciarrone believes that the regulated and hemp industries will eventually converge, whether through national or state-level licensing. Curaleaf’s strategy is to understand the hemp market while protecting the regulated channel, where its distribution assets and customer relationships reside. “We will fight to make sure we protect the regulated channel,“ he said, noting that brand work and product development, particularly in beverages, are ongoing priorities to maintain market share.

Why Cannabis Businesses Are Turning to Captive Insurance for Better Coverage

By Patrick Johnston
No Comments

It starts with a routine test result. A mid-size cannabis brand discovers that a batch of infused edibles has failed a pesticide screening. Within 48 hours, the company issues a voluntary recall, pulls product from dozens of dispensary shelves, and begins fielding calls from anxious retail partners. The financial damage — replacement inventory, logistics, regulatory compliance, and reputational repair — runs well into six figures.

Then comes the second blow: the insurance claim. The carrier cites an exclusion. The payout falls far short of actual losses. Or worse, the policy is non-renewed because the company is now considered “high-risk.”

This scenario plays out more often than anyone in the industry wants to admit. And it exposes a structural problem unique to cannabis: the commercial insurance market is thin, expensive, and full of holes.

 

Why Commercial Insurance Keeps Failing Cannabis Operators

Because cannabis remains federally illegal, the pool of insurers willing to underwrite cannabis businesses is small. Limited competition drives premiums up and coverage terms down. Many policies carry broad exclusions for the risks most common in cannabis operations — product recalls, crop loss, regulatory actions, and inventory spoilage. Operators routinely overpay for insurance that underperforms, year after year, enriching carriers while getting little in return.

For an industry already navigating 280E tax treatment, banking restrictions, and price compression, this is a problem that compounds.

 

What Captive Insurance Is — and How It Changes the Equation

A captive insurance company is a licensed insurance entity that a business owns and controls, established specifically to insure its own risks. Instead of paying premiums to a third-party carrier and watching that money disappear, the business funds its own captive. Think of it as a managed self-insurance fund with a formal regulatory structure — similar in concept to how large employers manage their own healthcare funds. The key difference is that the money stays with you.

When a covered loss occurs, the claim is paid from the captive’s reserves — reserves that belong to the company. Premiums not consumed by claims accumulate over time. A well-run captive builds equity year over year, compounding returns on its reserves. The financial benefit grows more meaningful with time, discipline, and sound risk management.

For catastrophic losses — the kind that would overwhelm any captive’s reserves — a reinsurance layer provides a ceiling on exposure. Routine and moderate losses are absorbed by the captive; extraordinary tail risk is transferred to the reinsurance market.

 

How Operators Actually Enter the Structure

A captive is a fully licensed insurance company, typically domiciled in a captive-friendly jurisdiction. It must meet capitalization requirements, file annual reports, and operate under regulatory oversight like any other insurer.

For most cannabis operators, a cell captive is the practical entry point. Rather than forming a standalone company, the business occupies a segregated “cell” within an existing Protected Cell Company — a shared infrastructure with legally isolated balance sheets. For smaller operators who want the benefits without the full capital commitment, a group captive — where multiple companies pool their risks — can be a viable path in.

 

Is It Right for Your Operation?

Captives aren’t for every operator. They require upfront capitalization, ongoing management, and regulatory compliance. The economics favor companies with meaningful premium volume. For smaller operations, the overhead may initially outweigh the benefit.

But for cannabis operators spending significant dollars on commercial insurance year after year — and consistently underinsured when it matters — what has been an operating expense can become a managed asset.

 

A Fortune 500 Tool Going Mainstream in Cannabis

Large corporations have quietly and effectively used captive insurance for decades. What’s new is that cannabis companies — facing a uniquely challenging insurance environment — are discovering the same structure works for them.

If you’re paying significant annual premiums and not getting full value, it’s worth the conversation.

 

Learn more at: 3F Captive Services — Cannabis Industry