Will MSOs Be Forced To Implement The Same Cost Cutting Measures That We Have Seen From The Canadian Licensed Producers?

For two years, cost cutting has been a major theme of the cannabis sector and North American operators are executing on this strategy through a variety of the methods.

Although several high-profile Canadian Licensed Producers (LPs) and United States (US) multi-state-operators (MSOs) have been executing on cost cutting strategies, most cannabis business are not profitable and we want our readers to be aware of this because these companies are getting ready to report quarterly earnings.

Some of the cost cutting methods are more effective than others and we are focused on identifying cannabis companies which are actually executing on a strategy to become profitable. Today, we want to highlight 3 of the most common strategies to cut costs and discuss the actual impact the strategy has on the business.

Reducing headcount – Firing employees has an immediate impact on the expenses that are associated with the business. While we believe this strategy is the easiest to execute on, it could have negative ramifications if the company needs to hire more employees when the market environment improves
Closing facilities or divesting assets – This is another effective cost cutting strategy as it immediately provides the company with a tax loss benefit. Unless the assets that are divested are sold for more than what the company paid for, the business can recognize a loss through this strategy
Writing down or writing off assets – From cannabis plants to facilities, companies can write down the cost that is associated with assets to make the business look more profitable. Although the strategy is effective, it does not look good to shareholders or analysts if a company utilizes this approach too often

During the last year, the North American cannabis industry has been under considerable pressure. The weakness comes as cannabis sales in the US are recording strong growth on a year-over-year basis. We continue to prefer operators that are levered to certain states, have strong balance sheets, and have improving fundamentals.

If you are interested in learning more about the types of cannabis companies we prefer, please send an email to support@technical420.com with the subject “Leading Cannabis Operators” to be added to our distribution list.