The list of casualties from the California cannabis world is quickly piling up, and industry insiders expect more failures in the months to come. The only question is: who and when?

The Golden State birthed some of the biggest global brand names in the cannabis industry to date after the legal market launched its adult-use market in 2018, but it has also given rise to some of the most dramatic flameouts in recent memory. In addition, it’s dissuaded plenty of interested businesses from putting down roots in the California marijuana trade, with systemic problems, extra layers of red tape, high taxes, and an illicit market that just won’t quit.

Just a few of the failure examples from the past 18 months:

• Northern California distributor and brand Flow Kana, which ceased operations in early 2023 after initially making a big splash in the run-up to the 2018 market launch.
• Southern California multistate operator MedMen Enterprises, which began in the gray market medical days in California and grew to become one of the first billion-dollar valuations after going public in 2018, before imploding earlier this year and filing for creditor protection.
• The magazine-turned-weed dealer High Times, which is now being sold off for parts after making a big bet on cannabis retail in California and then failing to repay a nearly $29 million loan.
• One of the largest cannabis distributors in California, Herbl, collapsed last spring under the weight of its own debt to vendors, leaving a huge trail of unpaid bills in its wake for business partners to swallow.
• Delivery company GrassDoor also closed down suddenly just before Thanksgiving last year, laid off all employees, and began liquidating all its assets.

That’s far from the entire picture. There are hundreds of other companies that have quietly disappeared from the California marketplace, just with lower profiles and less media attention, insiders told Green Market Report.

Who’s next?

One such recent casualty, according to sources, is the Southern California grower and cannabis brand Canndescent, which tried to revamp the strain name landscape by marketing its flower with names reflecting their psychoactive effects, such as “Charge,” “Calm,” and other words beginning with the letter C.

“They’re done,” an industry source said of Canndescent, after requesting anonymity to share knowledge of investor discussions.

Although Canndescent and an affiliate, LMG Processors, technically still have three active business permits for manufacturing and distribution, the company surrendered or gave up on 10 other permits it once held. The company’s website is inactive, and former executives could not be reached for comment on this story.

“Anyone who thought, ‘We’re going to throw some money around, we’re a big brand, we’ll just make it rain everywhere and have good branding and just kind of trick everyone into paying a lot of money,’ all those people are going away. Like Canndescent,” said Grant Palmer, the CEO of CannaCruz, a small retail chain based in Santa Cruz.

There are also plenty of well-known California marijuana companies – both plant-touching and well-known ancillary businesses – that are obviously floundering and could be poised to follow others to the grave, industry experts said.

Some of those include:

• Lowell Farms Inc. (CSE: LOWL) (OTCQX: LOWLF), which lost almost $3 million in the first quarter of the year, and nearly $13 million the quarter before that.
• StateHouse Holdings Inc. (CSE: STHZ) (OTCQB: STHZF), which has asked Canadian regulators for a cease trade order regarding its shares on the Canadian Securities Exchange and hasn’t even yet reported its fourth quarter 2023 financial results. In the third quarter last year, however, StateHouse lost $17 million and had almost $300 million in total liabilities.
• Another delivery giant, privately held Eaze, is facing foreclosure after defaulting on a $37 million loan.
• Gold Flora Corp. (Cboe Canada: GRAM) lost nearly $14 million in the first quarter of the year, after posting a $42.7 million loss for the 2023 calendar year. The company also has nearly $250 million in total liabilities.
• Ancillary firm WM Technology Inc. (Nasdaq: MAPS), the parent company of the popular dispensary finder Weedmaps, has also been struggling mightily for the past few years, and has regularly been posting multi-million dollar losses. Last year alone, Weedmaps lost $15.7 million, and its dispensary and cannabis brand customer base has been steadily contracting as the California market has shrunken just as mainstream platforms like Google and Yelp have begun listing licensed cannabis shops.
• Glass House Brands Inc. (CBOE CA: GLAS.A.U) (OTCQX: GLASF), one of the largest cannabis growers in the state, appears solidly funded with a good runway, but has been reporting net losses for quarter after quarter, including an $18.3 million loss in the first quarter this year and a $97.4 million loss last year.

“Who is successful? Even if you go to the ‘successful’ businesses, they still have a shit-ton of debt. And their only goal is, ‘If I can hold on long enough, all these smaller players will fall out,’” said Jerred Kiloh, the president of the Los Angeles-based United Cannabis Business Association, and the owner of The Higher Path, a licensed L.A. cannabis shop.

Business basics

The common thread tying many of the failures together is simply bad business decisions, said Morgan Paxhia, managing director at Poseidon Management in San Francisco.

“Governance, governance, governance. That’s what’s really been challenging, the quality of governance and management,” Paxhia said. “The industry is so big at this point, you can’t just say it’s the environment. That’s why the good companies manage through it.”

Even some of the bigger players that appear to be doing well, Paxhia said, are likely barely hanging on, or are focusing on diversifying, perhaps outside of California. He cited the global cannabis lifestyle brand Cookies as an example, which has heavily invested in Florida and even outside the U.S., but hasn’t appeared to have put as much back into its California operations.

“Cookies is really messy under the surface. It looks great on the surface because of the brand, but it’s a really convoluted structure of who owns what,” Paxhia said. “It’s very, very disaggregated … it’s hard to get a sense of corporate health.”

The bottom line, Paxhia said, is that a lot of the big-name failures were part of a bubble surrounding the industry optimism in its nascent days, which led to major fundraising numbers but not much in substantive business development.

“There were so many brands. They were everywhere, and they were raising these monster valuations on nothing. And it was obviously a bubble,” Paxhia said. “Canndescent is a great example. You remember talking with (CEO) Adrian (Sedlin) in the early days, and you ask him what EBITDA was, and I don’t think he knew what that acronym was. He was like, ‘We’re Silicon Valley, bro. We’re burning cash.’ Lowell (Farms) was like that too.”

Kiloh, who has led the 180-member UCBA for more than a decade, said he thinks the big-name failures are just the tip of the iceberg, and that the state government hasn’t done enough to help the industry succeed. Which means it’s in the process of failing.

“This is the death spiral we’ve all talked about. If we don’t do this right, the failures are just going to create more failures,” Kiloh said.

Kiloh and others also noted that the regulated market conditions in California – which have been notoriously difficult since being implemented in 2018, following a long-successful gray market that began in the late 1990s – have also scared off major multistate operators, including 4Front Ventures Corp., Trulieve Cannabis Corp., Curaleaf Holdings, and Slang Worldwide. All of them have exited California in the past two years.

“Look at the people who left. You’ve got big MSOs who left, and they didn’t fail, but they failed to make enough money to stay. There’s even more who gave up,” Kiloh said. “Even some of the big ones, like the Jerry Garcia brand. Whatever happened to that? Whatever happened to Willie Nelson’s brand?”

“I could go down the list, of all the companies that went, ‘There’s no money here. Let me go somewhere else,’” Kiloh said.

Some success

That isn’t to say there are no success stories.

Palmer said his Santa Cruz-based retail chain is a good example of what FundCanna’s Adam Stettner tried pointing to recently, about a decent number of small to mid-sized companies that aren’t getting much press attention but are executing nonetheless.

There are also a handful of bigger names that, despite the odds, also appear to be succeeding, sources agreed. The most commonly cited example? L.A.-based brand STIIIZY. The popular Jeeter brand was another name floated. Others cited retail chains Embarc and Solful, distributors Nabis and Mammoth Distribution, and growers Fig Farms and Decibel Gardens as varying levels of California success stories.

“We’re slaying it. We’re having our best year ever,” Palmer said, just days after winning local approval in the town of Salinas to relocate one of his four shops to a better location. “I think we made close to $25 million last year.”

Palmer said there are others like CannaCruz out there in California, smaller-scale companies doing well, but he also agreed they’re in the minority, like his Santa Cruz neighbor who runs Decibel Gardens, a licensed microbusiness that Palmer said literally has a wait list for each cannabis harvest due to high demand for the brand’s quality flower.

“There’s a few companies out there that have figured it out,” Palmer said. “You’re starting to see just a couple people pop up as success stories.”

The key, he said, is giving the massive California cannabis consumer base what it wants. That was a fatal flaw in much of the approach from the failed or struggling companies listed above, Palmer said: They thought they knew better than the consumers themselves.