Are Majority Of Cannabis Companies Meeting Board Expectations? EY Survey Finds...

The cannabis industry has been marked by turbulence in recent years, and 2022 was no exception.

According to the EY Global Cannabis CEO Survey, more than half of cannabis companies failed to meet their board's expectations due to a range of external factors such as intense competition, pricing and margin pressures, and complex regulations.

Despite these challenges, cannabis executives remain optimistic about the future, with 76% reporting a well-defined business strategy for 2023.

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To stay competitive, companies are focusing on margin enhancement and revenue growth, product innovation, and market expansion. With the cannabis industry poised for continued growth, companies that have established strong foundations are confident they will weather the storm, Rami El-Cheikh, EY Americas Cannabis Centre of Excellence Leader, said.

EY's diverse teams in over 150 countries use data and technology to provide assurance and help clients grow, transform and operate.

Tightening Business Strategies Amid Increased Competition

• 76% of executives consider excessive competition a primary concern
• Almost half of them predict increased competition in areas such as contract manufacturing and low-cost, large-scale flower cultivation.
• Despite these risks, 42% of executives foresee high growth in the industry in 2023
• Cannabis companies must focus on their business strategies, leveraging their strengths to offer unique value to consumers, El-Cheikh recommends.

Changing Perspectives On M&A

• 50% of global cannabis executives plan to maintain or reduce overall capital investment in 2023
• Many anticipate potential opportunities from competitor exits and legalization in new markets such as Germany, Israel, and Australia.
• Executives also "recognize that their companies will require funding or financing over the next 6-12 months to sustain operations and fund innovation and M&A initiatives.
• However, M&A activity should only be considered in select cases where companies have built a strong enough foundation to confidently realize rapid cost savings and revenue synergies.
• As cash dwindles and debt becomes payable, companies will exploit every lever possible to attempt to achieve cash flow positivity, including tight cost controls and stringent working capital management."

According to El-Cheikh, companies will need to become exceptional operators executing efficiently with resolve, grit, and a value-oriented mindset to survive in the industry's new normal.

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