Once hailed as a bull market with significant opportunity for growth, the maturing cannabis industry is now facing challenges to those initial assumptions – and many operators’ business models.
Crying foul over regulatory burdens, oversupply issues and unrealized promises of reform, small and large operators alike say the industry is in a precarious state.
Mark Slaugh, founder of Colorado-based compliance company iComply, said testing costs, licensing fees and shifting regulations that favor large operators are driving consolidation and favoring larger players.
“The compliance burden is massive,” Slaugh said. “It’s driving out smaller businesses that can’t afford to keep up with the costs of testing and licensing.”
For consumers, this comes at the expense of product quality. For operators, it means less diversity in C-suites.
Do cannabis regulations favor big MSOs over small players?
Slaugh cited Colorado’s reduced testing allowance as an example of how state regulations benefit big players at small operators’ expense. The policy allows cultivators to pay a $4,000 fee to test less frequently.
Small growers can’t economically justify the extra outlay, but larger operators can spread the costs, Slaugh said.
The stringent testing requirements for cannabis products are another point of contention, leading some operators to microwave samples to pass microbial tests without remediating the entire batch.
The imbalance has led to a wave of consolidation with larger companies acquiring smaller businesses that can no longer compete.
Slaugh warned that the trend is creating a race to the bottom, where quality and diversity are sacrificed for scale and cost efficiency.
“The rules aren’t built for small-batch quality to succeed,” Slaugh said.
“There’s so much we can do to make it better from a policy and regulation standpoint.”
How does oversupply affect the cannabis market?
Cannabis economist Beau Whitney highlighted another critical issue: oversupply.
The U.S. cannabis market is producing six times more cannabis than it can consume, with a capacity of 122 million pounds compared to a legal demand of just 20 million pounds, Whitney said.
The oversupply has led to significant price compression, squeezing margins for operators across the board. In Oregon, for example, the price of cannabis flower dropped to $3.33 a gram in December, down from $3.52 in 2024.
“Farmers are forced to plant regardless of what the price is, Whitney said. “You can’t just toggle over to corn or soy like other farmers.”
Price compression is shrinking margins as costs for packaging, labor and compliance increase.
Whitney also notes that state governments, which initially saw cannabis as a source of tax revenue, are now facing declining returns. In response, some are raising taxes despite pleas from the industry that added costs only encourage the illicit market even further.
“Sales taxes aren’t bringing in what the states thought they would, and increasing tax rates only drives consumers to the unregulated market, reducing revenue and harming legal operators,” he said.
Does community building drive cannabis acceptance?
The challenges facing the cannabis industry aren’t limited to economics and compliance.
Social equity remains a pressing issue, with minority-owned businesses struggling to gain a foothold in a competitive market.
Slaugh, who also chairs the Minority Cannabis Business Association, which advocates for Black and brown participation in the industry, emphasizes the need for policies that support small and minority-owned operators.
“The rules aren’t built for small-batch quality to succeed,” he said. “We need to create a system that allows diverse players to thrive.”
While Slaugh highlights the importance of fostering equity and inclusivity within the cannabis industry, others, like Joe Bayern, are turning their focus to building consumer trust through product innovation and reliability.
Bayern, CEO of cannabis consumer packaged goods platform MM Brands, emphasizes the importance of building trust and dependability in the industry.
“Consumers are accepting cannabis as a natural alternative to opioids and alcohol,” Bayern said. “But to advance the industry, we need products that are reliable, differentiated and backed by science.”
How can data shape cannabis policy?
Despite the challenges, industry leaders remain cautiously optimistic about the future.
Whitney is developing predictive tools to help regulators and legislators better understand market dynamics and avoid the pitfalls of oversupply and price compression.
Meaningful change will require a shift in how policymakers approach the industry. Legislators and regulators need better tools and data to make informed decisions, he said.
“When you have policies based on good intentions, and they’re not being met, something has to change,” Whitney said.
Slaugh said that without a regulatory framework that supports small businesses, the industry risks becoming a monopoly dominated by a few large players.
The solution, he said, lies in balancing supply and demand while reducing the compliance burden on small operators.
“We can either increase demand or decrease supply to bring price equilibrium back into focus,” he said.
Margaret Jackson can be reached at [email protected].
Cannabis industry experts will discuss topics like this Dec. 1-4 at MJBizCon 2026. Register now, and be part of the conversation shaping the future of cannabis.
