Connect with us

Business

Marijuana MSOs report mixed financial results after tough year

Published

on

Some marijuana multistate operators have weathered the perfect storm of macroeconomic headwinds, cannabis-specific challenges and legislative disappointments better than others, as evidenced by full-year and fourth-quarter results reported this spring.

Analysts and cannabis industry executives said they underestimated the impact of a multitude of challenges in the fourth quarter, which included:

  • Inflation driving up the cost of operations, many of which are business expenses that don’t qualify for tax breaks because of Section 280E of the federal tax code.
  • Inflation driving down consumer spending in many state markets, causing some shoppers to forgo premium products in favor of less expensive value brands.
  • Soaring interest rates, which increased the cost of raising capital.
  • Falling wholesale cannabis prices driven by glutted markets.
  • Lack of progress on banking reform or other key efforts at the federal level.

While most of those factors aren’t expected to shift any time soon, there’s hope that prices are stabilizing in some markets and that lobbying efforts to relieve the industry of 280E will eventually prove fruitful.

For the time being, however, at least some marijuana MSOs have proved to be more successful in confronting the financial and economic headwinds.

Jesse Redmond, managing director and head of cannabis research at Florida-based investment analyst group Water Tower Research, singled out Green Thumb Industries and MariMed for reporting strong results in spite of the headwinds.

Chicago-headquartered Green Thumb Industries reported $1 billion in revenue in 2022, a 14% increase from 2021.

Cash flow from operations was $159 million, and the company reported a net income of $12 million.

Massachusetts-based MariMed grew revenue to $134 million in 2022 from $121.5 million the previous year.

The company also reported a net income of $13.6 million, up from $7.6 million in 2021, and positive cash flow from operations for the third year in a row.

Morgan Paxhia, a co-founder and managing director of San Francisco-based Poseidon Investment Management, also flagged Green Thumb’s results for being impressive and added both TerrAscend Corp. and Ascend Wellness Holdings to his list of solid performers.

New York-based Ascend Wellness grew its net revenue to $405.9 million in 2022, a 22.1% increase over to 2021.

Ascend reported a net loss of $80.9 million in 2022 compared with $122.7 million in 2021.

TerrAscend, which has offices in California, Pennsylvania and Ontario, Canada, grew its revenue to $247.8 million in 2022, a 27.6% increase from 2021.

The company’s net loss was $299.4 million in 2022 due to a non-cash impairment charge recorded against goodwill and intangibles for its Michigan business.

“You look at TerrAscend, and today they have one of the higher growth rates in the industry, and forward-looking too,” Paxhia said.

“Same thing with Ascend,” he said. “They have good growth prospects, and we are a growth industry.”

Underestimating the challenges

But among the bright spots were plenty of companies reporting lackluster results.

Analysts and cannabis industry management teams underestimated the impact of the combination of factors working against them.

Multiple analysts anticipated that banking reform would pass in the fourth quarter, which it did not.

“The analyst community has been a little late in bringing down expectations,” Redmond said, with many multistate cannabis operators reporting earnings below analyst consensuses.

“I am guilty of being too optimistic.”

Florida-based Jushi Holdings, for example, reported $76.8 million in revenue in the fourth quarter versus consensus of $77.1 million and adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) of $6 million versus consensus of $4.1 million, according to a report by Canada-based ATB Capital Markets stock analyst Kenric Tyghe.

Chicago-based Cresco Labs also missed consensus estimates, “primarily due to much weaker than expected margins and EBITDA,” analyst Andrew Semple wrote in a report for California-headquartered Echelon Partners.

In addition, management teams underestimated the impact of macroeconomic headwinds and the lack of federal cannabis reform.

According to Ernst & Young’s Cannabis CEO Survey – which asked chief executives of U.S. and Canadian marijuana companies to reflect on 2022 and make predictions for 2023 – 51.5% of respondents said their business strategies performed below expectations.

While 69.7% of respondents said their companies performed in line with expectations from a top-line perspective, 57.6% of respondents said they performed behind what they planned to from a bottom-line perspective.

Price compression, competition and regulatory complexity were the top three reasons cited.

“All of this had a negative impact on performance and profitability,” the EY report noted.

All eyes on free cash flow

EBITDA is losing ground to free cash flow, or operating cash flow, as a reliable metric to gauge a cannabis company’s progress, Redmond said.

On SeekingAlpha’s Cannabis Investing Podcast on March 29, Jerry Derevyanny, a partner at Los Angeles-based venture capital firm Bengal Capital, said EBITDA is a “dangerous number in cannabis.”

For one, EBITDA is misleading for cannabis companies that are deferring their tax payments to the IRS because they reason that “borrowing” that money comes at a lower cost than borrowing from lenders, Derevyanny said.

There are also maintenance capital expenditures on cannabis real estate, he said.

“These facilities, especially some of the first-gen facilities, are going to start to see, I think, major retrofits in the coming years, and some of them honestly might need to be shelved completely and be written off, like some of the facilities in Canada,” he said.

EBITDA also glosses over the cost of capital, he said, which can be even more material in cannabis.

Among the top five multistate cannabis operators, Redmond said, only Green Thumb Industries generated tax-adjusted operational cash flow of $154 million.

MariMed reported $12.3 million in tax-adjusted operational cash flow.

On the other end of the spectrum, New York-based multistate operator Columbia Care reported minus $119 million in tax-adjusted operational cash flow, he said.

‘Bad M&A’ takes a toll

Mergers and acquisitions slowed in 2022, and the size of transactions also decreased.

M&A in 2021 was characterized by megadeals, such as Florida-based MSO Trulieve Cannabis’ acquisition of Arizona-headquartered Harvest Health & Recreation, which was initially valued at about $2.1 billion.

Paxhia called that price an overly high amount.

“I think Trulieve is a poster child for a bad M&A deal,” Paxhia said.

Now, he said, the company is struggling to cut costs and grow its core business.

On the company’s fourth-quarter and full-year earnings call on March 8, CEO Kim Rivers noted the unfavorable “timing” of the acquisition.

“The timing of this major expansion at Trulieve coincided with a reversal in favorable economic trends brought about by the unwinding of COVID-related tailwind and a decades-long period of global excess liquidity,” she said.

“The goal of 2022 was to digest and integrate Harvest, while transforming the company into a scaled multistate operator.”

But Trulieve is hardly alone.

The industry has had a disproportionate number of bad M&A deals, according to Paxhia.

Redmond estimates that capital expenditures among the top five Tier 1 cannabis MSOs have decreased by about 60% in the past year, and he expects that trend to continue across the board in 2023.

Florida-based Ayr Wellness, for example, canceled its acquisition of Chicago-based retailer Dispensary 33 in January.

“You can’t just magically turn on more revenues, unfortunately,” Redmond said. “And so, it’s easier to cut costs.”

Small signs of relief

If recreational cannabis were legalized in Florida, an initiative Trulieve is financially backing, the company is well-positioned to capitalize on the influx of both local and tourist dollars, Redmond said.

Prices are also showing signs of stability in some markets, such as California, Michigan and Oregon, he said.

In California, prices have rebounded in part because more than 800 cultivators have let their licenses expire rather than renew them, he said.

Maryland’s adult-use market, which is scheduled to launch in July, will also be beneficial to the multistate operators that are already set up in the medical market.

But what will really move the needle is federal reform.

“280E has got to go,” Paxhia said, pointing to the punitive federal tax code.

Allowing cannabis companies to deduct business expenses would be beneficial to all in the industry, he said, not just multistate operators.

“If you want to do things that are bullish for small companies in cannabis, you’ve got to get rid of 280E,” Paxhia said.

“It is just sucking the cash out of these things.”

Source: https://mjbizdaily.com/cannabis-multistate-operators-report-mixed-financial-results/

Business

EU Pressure Builds on Google as Regulators Face Calls for Massive Fine Over Search Practices

Published

on

By

A growing coalition of European industry groups is intensifying pressure on regulators to take decisive action against Google over allegations of unfair search practices that could reshape competition rules across the region’s digital economy.

Investigation Under Digital Markets Act Gains Momentum

The case is being examined by the European Commission under the European Union’s landmark Digital Markets Act (DMA), introduced to curb the dominance of major technology platforms and ensure fair competition.

Launched in March 2024, the investigation focuses on whether Google has been prioritising its own services in search results, potentially disadvantaging rival businesses that rely on online visibility to reach customers.

Industry Groups Demand Swift Action

Several prominent European organizations have jointly urged regulators to conclude the probe without further delay. They argue that prolonged investigations allow alleged anti-competitive practices to continue, putting European companies—especially startups—at a disadvantage.

Signatories include the European Publishers Council, the European Magazine Media Association, the European Tech Alliance, and EU Travel Tech.

In a joint statement, these groups warned that delays in enforcement are affecting innovation, profitability, and growth prospects for regional businesses competing in digital markets.

Google Denies Allegations

Google has rejected claims of bias, stating that its search algorithms are designed to deliver the most relevant and useful results to users. The company has also proposed adjustments to address regulatory concerns.

However, critics argue that these changes are insufficient and fail to address the core issue of market dominance.

Potential Billion-Euro Penalties

If found in violation of the DMA, Google could face significant financial penalties. Under EU rules, fines can reach a substantial percentage of a company’s global turnover, potentially amounting to billions of euros.

Regulators may also impose corrective measures requiring changes to business practices, which could have long-term implications for how digital platforms operate in Europe.

Wider Implications for Big Tech

The case highlights ongoing tensions between European regulators and major U.S. technology firms. In recent years, the EU has taken a more aggressive stance in enforcing competition laws, aiming to create a level playing field for local businesses.

A final ruling against Google could set a major precedent, influencing future enforcement actions and shaping the regulatory landscape for global tech companies operating within Europe.

As scrutiny intensifies, the outcome of the investigation is expected to play a critical role in defining the future of digital competition across the European Union.

Continue Reading

AI & Technology

Amazon Faces Potential Criminal Trial in Italy Over €1.2 Billion Tax Evasion Allegations

Published

on

By

Milan: U.S. tech giant Amazon is facing the prospect of a major legal showdown in Italy, after prosecutors in Milan formally requested a court to move forward with criminal proceedings over alleged tax evasion totaling approximately ₹12,500 crore (€1.2 billion).

The case targets Amazon’s European division along with four senior executives, marking one of the most significant tax-related investigations involving a global e-commerce platform in Europe.

Trial Push Despite Multi-Million Euro Settlement

The move comes even after Amazon reached a financial settlement with Italian tax authorities in December, agreeing to pay around ₹5,500 crore (€527 million), including interest, to resolve part of the dispute.

Typically, such settlements lead to the closure of criminal investigations. However, Milan prosecutors have opted to proceed, signaling a tougher stance on alleged corporate tax violations.

A preliminary hearing is expected in the coming months, where a judge will decide whether to formally indict the company and its executives or dismiss the case.

Allegations of VAT Evasion Through Marketplace Sellers

At the center of the investigation are claims that Amazon’s platform enabled non-European Union sellers to avoid paying value-added tax (VAT) on goods sold to Italian consumers between 2019 and 2021.

Prosecutors allege that the company’s marketplace structure allowed thousands of foreign vendors—many reportedly based in China—to operate without fully disclosing their identities or tax obligations. This, authorities argue, led to substantial VAT losses for the Italian government.

Under Italian law, online platforms facilitating sales can be held partially liable if third-party sellers fail to comply with tax requirements, a key point in the prosecution’s case.

Italian Government Named as Affected Party

In their filing, prosecutors identified Italy’s Economy Ministry as the injured party, citing significant financial damage resulting from the alleged tax evasion.

Legal experts say the outcome of the case could have wide-ranging implications across the European Union, where VAT systems are harmonized and similar compliance rules apply to digital marketplaces.

Multiple Investigations Add to Pressure

The VAT probe is just one of several legal challenges facing Amazon in Italy. The European Public Prosecutor’s Office is reportedly examining additional tax-related issues covering more recent years.

Meanwhile, Milan authorities are pursuing separate investigations into alleged customs fraud linked to imports from China and whether Amazon maintained an undeclared “permanent establishment” in Italy—potentially exposing it to higher tax liabilities.

In a separate regulatory action, Italy’s data protection authority recently ordered an Amazon unit to stop using personal data from over 1,800 employees at a warehouse near Rome.

Amazon Denies Allegations

Amazon has consistently denied wrongdoing and indicated it will strongly contest the allegations in court if the case proceeds. The company has also warned that prolonged legal uncertainty could impact investor confidence and Italy’s appeal as a destination for international business.

Broader Impact on Europe’s Digital Economy

If the case moves to trial, it could become a landmark moment for the regulation of global e-commerce platforms in Europe. Governments across the region are increasingly scrutinizing how digital marketplaces handle tax compliance, especially in cross-border transactions.

With online retail continuing to expand, regulators are under mounting pressure to ensure that multinational platforms and third-party sellers adhere to the same tax rules as traditional businesses.

Continue Reading

Aviation

IndiGo Crisis Exposes Risks of Monopoly: What If Telecom or E-commerce Collapses Next?

Published

on

By

Airports across India witnessed scenes of distress and confusion as thousands of passengers were stranded due to IndiGo’s massive flight disruptions. Families with medical emergencies, funerals, and personal crises were left helpless as the airline cancelled hundreds of flights without adequate communication or support.

Passengers described desperate situations — a mother pleading for sanitary pads for her daughter, a woman unable to transport her husband’s coffin, and others stranded while trying to reach family funerals or hospitals. “It was like a lockdown at the airport,” one passenger said, describing the panic that unfolded as IndiGo’s mismanagement crippled operations nationwide.

Root Cause: IndiGo’s Market Monopoly

The turmoil, industry experts argue, stems from IndiGo’s monopolistic control over India’s domestic aviation market. The airline operates nearly 2,100 flights daily and holds around 60% market share — meaning every second plane flying within India belongs to IndiGo.

This dominance has given the company unparalleled influence. When IndiGo falters, the entire aviation system suffers. Passengers are left with few alternatives, as other airlines lack capacity to absorb stranded travellers. The result: skyrocketing ticket prices, chaos at terminals, and total dependence on a single private operator.

Aviation pioneer Captain G.R. Gopinath, founder of Air Deccan, criticised the government’s inaction, noting that on some routes, IndiGo’s economy fares surged to ₹1 lakh. He compared the situation to a hostage crisis, writing that the airline “held the system ransom” and forced regulators to defer new safety rules meant to protect pilots and passengers.

Government Intervention and Regulatory Weakness

The crisis erupted after IndiGo failed to comply with the Flight Duty Time Limitations (FDTL) — rules introduced by the DGCA in January 2024 requiring adequate rest for pilots. Despite having nearly two years to adapt, IndiGo blamed the rule for operational disruptions, citing a shortage of pilots.

Under mounting public pressure, the government stepped in, temporarily relaxing FDTL norms and capping airfare hikes. Officials claimed the move was to protect passengers, but analysts say it exposed the state’s vulnerability to corporate monopolies. “The government had no option but to yield,” said one aviation policy expert, pointing out that ignoring safety regulations for short-term relief could have long-term consequences.

The crisis also rekindled memories of the June 2025 Air India crash near London, which claimed over 240 lives. Experts warn that compromising pilot rest and safety standards to maintain flight schedules could risk another tragedy.

If Telecom Giants Fail: A National Paralysis

The article raises a troubling question — what if a similar crisis struck the telecom sector, where Jio and Airtel together control nearly 80% of subscribers and serve over 780 million users?

If both networks failed simultaneously, the repercussions would be catastrophic. Internet shutdowns would halt UPI transactions, online banking, OTP verifications, video calls, OTT streaming, and emergency communications. Critical services such as airports, hospitals, stock exchanges, and small businesses — many of which rely on WhatsApp and digital payments — would come to a standstill.

In essence, a telecom breakdown could paralyse India’s digital economy, exposing the nation’s dependence on a duopoly.

E-commerce Monopoly: Another Fragile Ecosystem

The same risk looms over the e-commerce sector, where Amazon and Flipkart dominate nearly 80% of the market. A disruption similar to IndiGo’s could cripple daily life — halting delivery of groceries, medicines, and essential goods, freezing refunds and customer support, and leaving small sellers without platforms to trade.

Local retailers, freed from competition, might exploit shortages by inflating prices. Such a scenario underscores the perils of market centralisation in sectors critical to everyday living.

A Wake-Up Call for Regulators

The IndiGo crisis, analysts say, is a warning shot for policymakers and regulators. A single company’s operational failure exposed systemic weaknesses in India’s infrastructure and consumer protection mechanisms.

As the aviation regulator DGCA investigates and IndiGo works to restore normalcy, the broader lesson remains clear: unchecked monopoly power in any essential service — whether air travel, telecom, or e-commerce — poses a direct threat to economic stability and citizen welfare.

Without stronger competition laws, redundancy frameworks, and regulatory oversight, India risks repeating this crisis across multiple sectors — each time with millions of citizens paying the price.

Continue Reading

Trending

Copyright © 2022 420 Reports Marijuana News & Information Website | Reefer News | Cannabis News