A byline by Michael Sassano
2025 has kicked off fast and furious for the global cannabis industry as volumes increase and more countries come online at a rapid pace. The global medical cannabis explosion is here, with billion-euro markets like Thailand and multimillion-euro markets like Germany leading the way. Promising markets like Australia are not far behind, and these advanced markets provide models for other countries to emulate, providing access to safe and high-quality cannabis.
However, with all this advancement, bad models and lousy management have led to distrust in the industry — and the impending pricing drop is going to be a defining moment for many cannabis companies: some will make it, others will not.
Product Dumping: A Disaster in the Medical Cannabis Market
The cannabis industry is facing a massive problem in the form of product dumping. Undercapitalized grows and broken Canadian grows are selling as much as they can for any price. Unfortunately countries like Australia are heading down the same road as Israel as a dumping ground for flowers due to easy import regulations.
Lower prices are a normal reaction to oversupply and shifting consumer preferences in any competitive market. However, in the cannabis market today, product dumping and the financial stress on growers lead the pricing war, rather than consumer-driven price decreases.
Although this is not something new, the cannabis global medical market — which was once a bastion of quality — now resembles the island of misfit toys where any product can enter the market as long as the price is right. Dumping bad products is driving costs lower, while producers of premium products have to watch and guess at the future. From my perspective, the future of the global cannabis industry is pointing down right now despite the massive increase in demand, exacerbated by the fact that consumers are highly price-conscious.
Big Cannabis Gets Desperate
The next wave of price compression will occur when large companies begin to feel the pressure to continue growing and satisfying shareholders and then convince themselves they can sustain lower prices. When this happens, we will see large companies begin dropping prices to push revenue, flooding the market with flowers and driving smaller, more reputable manufacturers out of business while these large companies survive by selling shares.
Large, vertically integrated manufacturers, cultivators, and distributors can reduce prices because they control almost all the margins available. Should these larger companies reduce pricing amid dumping — which seems highly likely — 2025 could witness a watershed moment that will drive many cannabis companies to change their structures and strategies.
The Pricing Plight of White-Label Cannabis Companies
When prices compress due to large, vertically integrated players reducing prices, the first group to take a hit will be white-label brands.
Too many quasi-brands are currently trying to catch margins with little capital risk. The cost of production for white-label manufacturers and cultivators is already at the lowest possible level. When a market drops significantly, which is very likely in 2025, the cannabis industry will need to make difficult decisions since neither side of this model can survive without cuts.
Survival of the Fittest in a Tight Market
A few scenarios usually follow in sequence. The companies that adopt flexible strategies most quickly have the greatest chances of success.
The first to feel the effects of dropping prices will be white-label brands that cannot negotiate lower costs with their producers. There simply are too many white-label brands selling the same product from the same manufacturers to be feasible in a squeezed market. These white-label producers are generally undercapitalized groups that cannot support their sales, so selling to as many people as possible at low margins is the only way to run the model — until price compression hits. When that happens, white-label brands must cut staff. Generally, the C-suite cuts important departments, like sales, further deteriorating the company. Cashflow soon dries up, forcing them to renegotiate payment terms — and the slow skid to the bottom continues.
Falling Prices Before a Rising Tide?
Some strong companies will vertically integrate to capture the margins they need to survive, and we are already beginning to see this happen.
A few innovative founder-led companies will cut the C-suites and move toward selling more product so they can negotiate payment terms and bulk discount pricing. Direct manufacturers that invest in sales and branding will become the go-to safety play for the few companies that will survive major price compression.
Shedding the idea that hundreds of local white-label brands are sustainable will lead to faster recovery from price compression.
The Wrong Way to Capture Margins: Conflicts of Interest in the Medical Cannabis Industry
Conflicts of interest are another major problem facing the global cannabis market today. The most problematic occurs when vertically integrated players overreach and actually own clinics and doctors’ offices. Vertical integration is beneficial, but despite creative structuring, companies that drive their own products through paid doctors and clinics cross a line.
There is little precedent in the pharmaceutical regulatory framework that acknowledges medicine manufacturers also own and prescribe white-label or branded medicine from their own facility. Despite claims of doctors‘ choice, house medicines are typically prescribed due to preferential positioning and doctor education.
If this seems like a massive conflict of interest, that’s because it is. Worse, it’s actually happening. Regulators are aware of the problem but do not care due to a lack of patient complaints warranting an investigation. However, all it takes is for one regulator actually to care to investigate, and the house of cards falls.
Finding a Way Forward for the Global Cannabis Market
Capturing margins is the only way for cannabis companies to survive the next wave of price compression. So far, 2025 seems filled with increased demand and an increased flow of cheap, low-quality products. As small companies succumb to the pressure of price compression, bigger ones are getting ready to drop prices even further. This compression will cause companies to dramatically change how they operate and how they approach the industry.
One thing is certain: capturing margins by owning clinics and doctors is not the right way forward, and we need regulatory change to address these practices. 2025 will be pivotal for the global medical cannabis industry, and we need to look toward the future and embrace change!
About the author
Michael Sassano, Founder, CEO, and Chairman of the Board for SOMAÍ Pharmaceuticals, a European pharmaceutical and biotech company centered on manufacturing in Lisbon, Portugal, and globally distributing EU GMP-certified cannabinoid-containing pharmaceuticals.
Disclaimer: Bylines by external contributors must not reflect the opinion of the editorial team. If you want to contribute as an external expert please reach out to redaktion@krautinvest.de.
1 comment
This is a great overview of market trends and some of the externalities of operating an international cannabis business. Without saying it explicitly, the importance of high quality, prestige brands is becoming clearer as the industry matures. Yes, a race to the bottom with questionable business ethics is also taking place, but the maturation of the industry will also create the conditions for the high quality players to continue to thrive.