The Economic Outlook for Cannabis Companies in 2025

The cannabis industry is at a pivotal juncture, evolving rapidly amid shifting macroeconomic and regulatory landscapes. As we look ahead to 2025, the sector offers both significant opportunities and notable challenges. From easing macroeconomic pressures to a maturing capital market, here’s what lies ahead for marijuana companies and investors.

Easing Macroeconomic Pressures

The COVID-19 pandemic temporarily boosted cannabis sales, creating an atypical demand surge. Now, as consumers return to pre-pandemic purchasing behaviors, demand is stabilizing. This normalization is allowing companies to plan long-term strategies with greater predictability.

Still, macroeconomic factors such as labor and packaging costs continue to impact the industry. Innovations like curbside pickup and delivery have emerged as efficiency drivers, increasing revenue per employee and enhancing customer convenience. As supply chains stabilize, geopolitical risks remain a consideration, but businesses that prioritize cost-saving measures will be well-positioned for growth.

Price Compression and Efficiency

As more states legalize cannabis, price compression is an inevitable reality. Operators must maintain fiscal discipline and adapt to the market’s changing dynamics. “Doing more with less” has become a critical success factor. Companies that embrace efficiency, adopt innovative business models, and prioritize strategic cost management will thrive in an increasingly competitive landscape.

Cost of Capital: Relief on the Horizon

Rising interest rates in recent years have significantly increased the cost of capital for cannabis operators, with smaller businesses often paying exorbitant rates of 30% or more. This has delayed store openings, suppressed market growth, and limited consumer participation in regulated markets.

Looking ahead, forecasts predict declining interest rates in 2024 and 2025, which could provide much-needed relief. Even a modest 1% rate reduction on a $2 million loan translates to $20,000 in annual savings. This reduction will benefit operators by easing cash flow constraints and increasing

Cannabis Capital Markets: A Maturing Landscape

Cannabis capital markets have evolved from a retail investor frenzy to a sophisticated sector attracting seasoned investors. Nearly half of U.S. states now permit adult-use cannabis, with over 40 states allowing some form of legalized cannabis. Despite the challenges faced by public cannabis stocks—such as the AdvisorShares Pure US Cannabis ETF (MSOS) declining over 85% from its peak—the industry’s fundamentals remain robust. The U.S. marijuana market grew from $27 billion in 2021 to an anticipated $32.1 billion by the end of 2024.

Emerging markets transitioning from medical-only to adult-use represent significant growth opportunities, especially in states with limited license structures. These markets not only reduce competition but also promote scalability, making them attractive to investors.

Outsourcing and Vertical Integration

Rising capital costs have prompted many vertically integrated cannabis businesses to adopt low-touch outsourcing models. Multistate operators (MSOs) and leading brands increasingly leverage smaller operators in emerging markets, enabling rapid expansion with minimal infrastructure costs. This revenue-sharing model allows brands to introduce products across multiple states efficiently and cost-effectively, signaling the future of cannabis operations.

Regulatory Shifts and Tax Reforms

Federal and state tax policies remain a critical focus for the cannabis industry.

• Section 280E Tax Burden: This provision currently prevents cannabis businesses from deducting most operating expenses, costing the industry billions. Rescheduling cannabis under the Controlled Substances Act could eliminate 280E, improving industry cash flow by $3.1 billion annually by 2026.
• SAFER Banking Act: If passed, the SAFER Act would provide cannabis operators with access to traditional banking, streamlining financial operations and attracting institutional investors.
• Tax Cuts and Jobs Act Expiration: The potential expiration of temporary tax cuts in 2025 could increase corporate taxes from 21% to 28%, posing new challenges. Advocacy for tax reforms at both federal and state levels will be essential. States like Massachusetts and New York have already removed 280E from state tax codes, setting a precedent for others to follow.

Investors: Seizing the Opportunity

Today’s cannabis investors are highly selective, focusing on businesses with strong fundamentals, experienced leadership, and scalable operations. Companies with intellectual property, market share dominance, or innovative business models are particularly appealing.

Emerging categories like cannabis-infused beverages offer exciting diversification opportunities. As regulatory frameworks expand to include these products, they add new revenue streams and appeal to broader consumer segments.

For investors, the cannabis market in 2025 represents a historic opportunity. With federal rescheduling and banking reforms on the horizon, combined with a maturing industry and robust growth prospects, the sector is primed for long-term success.

How Companies Can Attract Investment

Cannabis operators seeking investment in 2025 must prioritize the following strategies:

• Focus on Profitability: Investors are scrutinizing cash flow and profitability more than ever. A clear path to sustainable growth is essential.
• Strategic Valuation Comparisons: Use public and private comparables to present realistic and appealing valuations.
• Build Strong Competitive Advantages: Protect market positions through intellectual property, unique products, and strategic partnerships.

A Resilient Industry Moving Forward

While the cannabis industry still faces hurdles, there are promising signs of progress. In 2024, 27.3% of cannabis businesses reported profitability—a significant improvement from just 14.4% in 2023.

Optimism remains high among industry stakeholders, with confidence in both the short-term (one year) and medium-term (three to five years) future of the market.

Looking Ahead

The cannabis industry’s resilience and adaptability have positioned it for a transformative 2025. As regulatory reforms progress and the capital market matures, businesses and investors have a unique opportunity to shape the future of this evolving sector. Whether through strategic investments, innovative operations, or partnerships, the next few years promise growth, stability, and the potential for significant returns.