How Cannabis Companies Can Survive—And Thrive—In A Broken System: Lessons From Ross Gerber

As the cannabis industry grapples with ongoing legal and financial challenges, companies are looking for ways to navigate a complex environment. Ross Gerber, co-founder, president, and CEO of Gerber Kawasaki Wealth and Investment Management, shared his views on how cannabis businesses can better position themselves for success ahead of the upcoming Benzinga Cannabis Capital Conference, where he will speak.

Gerber, a long-time advocate and investor in the cannabis space, highlighted the financial challenges many companies face due to federal regulations. One of the primary obstacles is the burden of excessive taxation under the 280E tax code, which limits profitability.

"The federal laws have created two major barriers for cannabis companies—over-taxation and restricted access to capital markets," Gerber explained. These issues make it difficult for even well-managed companies to thrive in the current environment.

The Capital Structure Challenge

Gerber emphasized the importance of financial discipline in this restrictive landscape. According to him, managing a company's capital structure is crucial. "What matters most is whether these companies are cash flow positive and how they handle debt in an environment where interest rates can be exorbitant," he said. For Gerber, companies that can maintain financial stability despite these challenges are more likely to emerge as leaders in the industry.

The restrictions on raising capital through traditional U.S. exchanges further complicate matters for cannabis businesses. Gerber pointed out that many companies are forced to seek funding in less favorable markets, such as Canada, where interest rates are high. "These companies are essentially stuck in a financial bind, unable to raise funds on U.S. exchanges and paying high rates to secure capital elsewhere," he said.

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The Potential Impact of Federal Rescheduling

Gerber also discussed the potential effects of federal cannabis rescheduling on the financial health of cannabis companies. He believes rescheduling could provide much-needed relief by reducing tax burdens and opening access to traditional banking services. "Removing the federal legality issue would significantly improve the financial performance of these companies," Gerber said. This change could allow companies to refinance their debt and reduce operational costs, making them more competitive in the long run.

However, Gerber cautioned that rescheduling alone is not a panacea. Cannabis companies need to be prepared for the regulatory changes that would follow. He stressed the importance of staying financially disciplined and ready to adapt to new opportunities that may arise from changes in federal law.

Strategic Management Is A Must

As the industry anticipates possible federal changes, Gerber advised cannabis companies to focus on financial health and strong management. "The companies that can refinance their debt and reduce costs will see their value increase significantly," he said. Companies can better position themselves for success in a competitive market by maintaining financial discipline and being ready for legal shifts.

The upcoming Benzinga Cannabis Capital Conference will offer a platform for industry leaders like Gerber to share their insights and strategies. As the cannabis industry continues to evolve, events like this provide valuable opportunities for businesses to learn from experts and prepare for the challenges ahead.

Gerber’s message to cannabis companies is clear: prioritize financial stability, prepare for potential legal changes, and ensure strong leadership. These elements are essential for navigating the current challenges and positioning for future success in the cannabis industry.

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