In 2020, about two thirds of cannabis retailers were profitable. Fast forward to 2022, and that number is down to 31%, according to MJBiz daily research.There are a lot of reasons why that’s the case. Price compression keeps gross profit down as customers shop around for the best discounts. With prices set by the wholesalers, retailers typically use a standard markup of 100% which sets gross margin at 50% before discounting.When you take into consideration overhead for a mid-sized cannabis company – a good overhead ratio is in the 25-30% range – you’re left with net income of around 20%. That’s a strong number, and for almost any industry, it would leave a business in a good financial position.But for cannabis, that’s not the end of the story. Until cannabis gets rescheduled to Schedule III, federal taxes for retailers – which can be anywhere from 20%-40% – are essentially calculated based on gross profit because of Internal Revenue Service Code 280e.Even in a best-case scenario, with...
