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A cannabis business expert recently pointed out that the manufacturing of both cannabis and hemp products like edibles and concentrates has always been a profitable but highly risky business. That means it’s not for the entrepreneur who tends to be faint of heart.
That said, taken as a whole, the cannabis industry is said to be gearing up for a banner 2022. However, the high skies will not be turbulence free. Processors, retailers, and growers will continue to have trouble leveraging “risk management” in order to minimize the threats to their stability and overall profitability.
According to a new industry report, cannabis risks have always outweighed the availability of cannabis insurance. That’s due in large part to it still being an illegal substance on the federal level, not to mention the dangers inherent in its production and extraction. It also shares many of the same dangers that other agriculturally based products face such as crop failure, cyber risk, and a shortage of knowledgeable and skilled workers.
But with state-wide legalization becoming commonplace, the industry can look forward to huge growth regardless of the many challenges. The businesses that stand to benefit the most will the ones who are poised to manage the most risk.
Here’s just some of the obstacles that the cannabis industry will face in 2022 and how organizations with high hopes are planning on combatting them.
Cybercrime
Experts attest that the top cannabis manufacturing risk in 2022 will be cybercrime. Since the beginning of the COVID-19 pandemic, cybercrime and cannabis have realized “major booms.” Cannabis enterprises sat back and saw how hard both pharmaceutical and healthcare organizations were bombarded by cybercriminals. The smart cannabis businesses realized quickly that this threat was coming their way.
For the retail sector, their particular vulnerability can be found in their Point of Sale or POS technology. For cultivators, the cybercrime threats can be found in their utilization of intelligent automation to assist in managing their cultivation process. Generally speaking, the entire industry is said to possess less than adequate IT security systems which means it’s fodder for bad actors, at least in the short term.
Upwards of 60 percent of all cannabis and hemp businesses admit to not having taken the necessary preventive measures against cyberattack. But experts predict that will change in 2022 with cyber insurance coverage expected to rise by 30 percent.
Business Growth Barriers
Barriers to business growth such as federal regulations may result in more cannabis mergers and acquisitions or M&A. As of the summer of 2021, 18 U.S. states are said to have legalized the adult use of recreational marijuana while another 37 states have authorized its medical utilization.
While this represents a terrific opportunity for cannabis entrepreneurs, things in the U.S. market still remain complicated to say the least. Regulations set forth by the federal government are said to be continuing to block industry growth by restricting lending to cannabis businesses by the centralized legacy banking system.
It should be noted that while it’s not against the law to do business with the cannabis industry, many financial institutions nonetheless avoid it due to what they perceive as high risk. It’s the small, “mom and pop” cannabis enterprises that are most hurt by this situation, which is why they are eagerly awaiting passage of the Secure and Fair Enforcement (SAFE) Banking, along with Clarifying Law Around Insurance of Marijuana (CLAIM) Acts. These new laws should allow safer if not easier access to much needed working capital.
Taken together, the two acts of brand new legislation will provide much sought after guidelines on how to go about working legally with cannabis businesses while doing away with penalizing the financial institutions who choose to lend to them.
Severe Weather
Some experts are claiming that severe weather in the U.S. isn’t easing up anytime soon. Be it the result of information overload via social websites like Twitter or real climactic change, extreme natural disasters don’t seem as rare as they once did not that long ago. They have certainly added to the uncertainty cannabis growers already feel and who have experienced trouble getting crop insurance coverage.
For instance, insurance policies that cover hurricane and wind damage in Florida and fire/smoke in California, don’t apply to a cannabis crop. The reality is this: a single catastrophic weather event of just a few minutes in duration can literally wipe out an entire cannabis crop that took months to harvest and tens if not hundreds of thousands of upfront dollars to maintain. As for the recourse the grower can take when such a disaster occurs? Unless he or she is somehow insured, there is none.
One available solution for cannabis companies that find it impossible to secure crop insurance is what’s called, parametric insurance. This type of insurance is said to pay out “when a weather element reaches a threshold,” regardless of realized destruction and/or loss.
Growers who utilize indoor operations face other issues such as those brought on by the progressive party. For instance, new energy conservation regulations in California will require indoor growers to utilize LED lighting by 2023. This law might not seem like a big deal on the surface, but experts say it will cost the cannabis industry millions of dollars. It also threatens to wipe out small growers and businesses.
