Top Cannabis Diversification Secrets: Industry Leaders Reveal Strategies For Success At Benzinga Conference

One of the most discussed concepts in the cannabis industry is diversification—a strategy discussed in depth during a panel on the first day of the Benzinga Cannabis Capital Conference in Florida. 

Moderated by Amy Rubenstein, partner at Dentons, the panel gathered industry experts to dissect what diversification means for cannabis businesses and how it can secure their growth and financial health amidst a dynamic market.

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The Essence Of Diversification

Panelist Gerald Pascarelli, SVP, Equity Research at Wedbush, emphasized the necessity of a diverse portfolio, including different delivery mechanisms, form factors, and price points. “Most companies are paying a 70% effective tax rate. When you think about where diversification or growth can go wrong, it’s spending too much CapEx and not protecting your cash,” Pascarelli explained.

The opinion of Vahan Ajamian, capital markets advisor at High Tide Inc HITI, on diversification focused on vertical integration challenges and opportunities, particularly in restrictive markets like Canada. “It’s about leveraging what you can—like accessories in our case—to offset vertical integration limitations, ensuring a direct impact on the bottom line,” Ajamian stated, shedding light on creative approaches to circumvent market restrictions.

Read also: EXCLUSIVE: Green Check, Brinks-Owned PAI Forge Partnership To Expand ATM Access For Cannabis Businesses

Navigating Through Challenges

Despite the apparent benefits, diversification comes with its hurdles. Ajamian warned against straying too far from the core mission, pointing out that unsuccessful diversification often stems from a misalignment of business actions with the company’s foundational goals. 

Adam Stettner, CEO of FundCanna, echoed this sentiment, warning against spreading too thin and losing sight of what has proven successful. “Diversification is great only if it leads to benefit for the operator and the team,” Stettner said. Ensuring multiple sources for purchasing and selling can safeguard businesses from unforeseen disruptions, fostering stability and resilience.

Similarly, Cassia Furman, partner at Vicente LLP, cautioned about the complexities of expanding product lines and entering new markets, emphasizing the need for thorough market understanding and strategic partnerships.

Legal Structures And Tax Considerations

The panel also touched on the intricacies of navigating legal structures and tax burdens, particularly the impact of IRS code 280E on cannabis operations. “Exploring ancillary structures and ESOPs (Employee Stock Ownership Plan) as exit strategies can offer avenues for relief, but require meticulous planning and execution,” Furman stated, highlighting a critical balance between strategic diversification and operational feasibility.

While the paths to diversification vary, a common understanding emerged: strategic diversity, grounded in a deep understanding of the market and one’s core competencies, is essential for a successful operation.

Don’t miss tomorrow’s conference agenda for more pivotal insights into the future of cannabis!