When Does the Company’s Annual and Quarterly Report Become Irrelevant?

An inside look at companies of the past, and how we can use that to look at the cannabis companies of today

Source: Michelle on Unsplash.

We’re not there yet.

That’s what I tell people as most of the cannabis companies take a hit for the last year.

We’re not there yet because we haven’t started.

America harvests about 500 million pounds of tobacco every single year. By comparison, Aurora Cannabis (ACB), Canopy Growth (CGC), Cronos (CRON), Tilray (TLRY), and Aphria (APHA) harvested about 100,000 to 150,000 pounds each. A comparison of pounds tobacco to pounds cannabis is not 1:1, but, for the sake of argument, it wouldn’t need to be here. If we were even talking about a .25:1 scale, it wouldn’t be relevant, either. Currently, we’re looking at .1% of what the tobacco industry has. I won’t even include alcohol sales because, if I included that, then we’ll be looking at a percentage laughably smaller than .1%.

Which leads us to the next topic:

The annual report is gibberish.

We can look at debts, goodwill, and the amount of bleeding for any cannabis corporation right now and come to the same conclusion: They will go bankrupt.

Nobody asks what the replacement will be. The tax revenue for cannabis is highly beneficial for the United States and Canada. Poor structure and implementation cost both consumers and growers pain that is rather unnecessary.

Furthermore, annual reports are snapshots. In a company’s profile, the profile needs to first exist before the criticism of the company’s health takes place. We can’t use the reports to reflect on progress if cannabis is still federally illegal and the black market continues to grow in size. Many studies indicate that the black market for cannabis in the United States is vastly larger than the legal market. In California, there were over 3,000 illegal marijuana operations running when only 873 cannabis sellers were licensed, according to the Bureau of Cannabis Control.

These are issues of incompetence. California isn’t leading an illegal ring of drug activity. The fact that licenses cost millions of dollars is a testament to the fact that government and state only want to tax rather than implement a well-thought business strategy for entrepreneurs. There is no long-term solution, and there hasn’t been one thus far.

Many of the cannabis companies above have operations that could easily scale to grow millions of pounds per year. Without an actual taxation policy that makes sense, no annual report will be able to reflect a relevant earnings number quarter-over-quarter.

And, if these companies were to stop existing, the illicit ring of growers would simply proliferate, as they are doing so today. That’s because California’s laws, by example, are artificially creating a black market for growers to move product over state lines to other states where the product can be easily transacted. A study by New Frontier indicated that 80% of California’s cannabis is sourced through the black market, accounting for a minimum of $4 billion in 2019.

“The black market is a huge problem,” said Patricia Heer, an attorney and founder of Cannabis Law Digest. “In some states, it’s between 70% and 80% of sales.”

New Frontier also estimates that about $70 billion in cannabis in the United States is sold illegally. This is the number investors try to look for on a balance sheet or income statement, but won’t find.

This is the revenue that common sense law-making could fix with federal legislation. It would be a win for tax revenue and it would be a win for the safety of the consumer.

Why does the dispensary exist?

It’s an unnecessary business segment and an annoying stop to the adult-use community.

If you want a pack of cigarettes, nobody looks up where the nearest Marlboro store is. You go to the gas station, where you fill up the tank; or to the drug store, to buy it along with something else; or to that local mart to buy your usual few things.

The point is that you buy a pack of cigarettes where you buy other things. The idea of the dispensary is setting people back to a strange place where they need to make an additional stop to get a medical or recreational product. The pack of joints should be where all the other packs of smokeable entities lie.

A dispensary needs additional labor that purely sells cannabis product, the overhead cost in the way of electricity, rent, and upkeep of a physical building, and a slower business environment because people won’t want to be inconvenienced with going to a weird location to pick up cannabis.

This is a roadblock that’s instead been taxed and licensed instead of executed in the way of workable legislation for a business to function smoothly.

We will know when lawmakers are serious when we begin to see a better approach to the delivery method of these products. It’s not complicated, but the approach to tax first and to tax heavily hasn’t worked. Instead, we’ve weaved that into awful implementation to deliver these products in the worst, most inconvenient, expensive way possible.

Cannabis on its own is far less dangerous than both alcohol and tobacco. Both alcohol and tobacco will kill you, cannabis won’t. Yet, cannabis is safeguarded in brick establishments covered with security doors whereas your pack of Marlboros is sitting behind the person running the cash register at your local 7–11.

It makes no sense. In a world where it can make sense to your average teenager.

The industry isn’t here yet, so the numbers don’t mean anything.

Mathematically, the numbers should be there. They aren’t, because the industry doesn’t have commonsense taxation practice. The rollout is bad, and illegal sales occur all over. They’re actually the vast majority of sales.

This is all happening when many analysts are projecting marijuana sales hitting over $100 billion in a decade. And that’s on the conservative side, considering that the CBD market has yet to pick up, along with the eventual passage of federal legalization and pharmaceutical grade cannabis derivatives that could replace conventional painkillers.

It’s not that the numbers won’t ever exist, or that the companies are doomed. Any of the companies listed above are capable of growing cannabis currently at a per gram cost of under $1 per gram. That’s incredible considering many of them have to scale down their operations to align with the legalized bottle-necking and loss of sales through the black markets. If these companies stopped existing, their replacements would be the entities servicing the industry from two decades ago. It wouldn’t be a business fluctuation, it would be a devastation to healthy entrepreneurial growth and a massive loss in tax revenue for countries near and far.

Full disclaimer: I own Canopy Growth and Aurora Cannabis stock.

Written by

UC Berkeley, mathematics. Los Angeles. Long-time runner. Top writer on Quora, 100M+ total content views. New to Medium. Inquiries: Moumj@berkeley.edu

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