Jesse Redmond, head of cannabis research at Water Tower Research, shared a pivotal perspective at the Benzinga Cannabis Capital Conference, emphasizing a critical shift within the cannabis industry. He referred to 2024 as the “year of the core,” where cannabis companies are shifting their strategies toward operational efficiency and optimizing their key assets. This is in response to growing financial pressures and market maturation, with the aim of achieving long-term sustainability. Data from various reports reinforce Redmond’s points, highlighting the necessity for companies to operate smarter while maintaining the potential for mindful growth.
Efficiency is No Longer an Option—It’s a Necessity
The cannabis industry, once fueled by aggressive expansion and rapid investment, has reached a point where efficiency is essential. According to New Frontier Data, total U.S. cannabis sales are expected to surpass $35 billion by 2025. However, regulatory burdens, high taxation, and market saturation have put significant pressure on profit margins. This reality has forced companies to rethink their approach. For example, a 2023 report from MJBizDaily revealed that cannabis businesses are grappling with the high cost of compliance, which, in some states, can eat up 30% or more of their revenues. This has caused firms to pivot towards leaner, more efficient operations.
Redmond described this evolution as an ongoing commitment rather than a one-time adjustment. “It’s not just about cutting expenses,” he explained, “We’re becoming leaner and more efficient while still expanding mindfully.” This aligns with findings from Leafly’s 2023 Industry Review, which noted that 45% of cannabis operators have instituted cost-saving measures in the last 12 months, with many also trimming less profitable business lines to focus on their core operations.
The “Year of the Core” Strategy: Backed by Data
Redmond’s “year of the core” reflects a wider trend among cannabis firms that have shifted focus from rapid expansion to refining their operations. Deloitte’s 2023 Cannabis Industry Report supports this, showing that companies prioritizing efficiency have outperformed those that continue to pursue speculative growth. For example, multi-state operators (MSOs) such as Curaleaf and Trulieve have taken substantial steps to streamline their operations. Curaleaf recently announced it would reduce its headcount by 10% and shut down underperforming locations, saving an estimated $60 million annually. Trulieve, one of the largest U.S. cannabis companies, has also pivoted by focusing on its most profitable markets after experiencing margin compression from regulatory hurdles and market saturation.
According to MJBizDaily, capital access in the cannabis industry plunged by 64% in 2022, with many investors pulling back from cannabis stocks due to profitability concerns. In response, cannabis firms have taken a more disciplined approach to growth, moving away from opening new dispensaries and cultivation sites at breakneck speed to focusing on profitability and asset optimization. This mirrors Redmond’s sentiment that the “year of the core” is not a short-term strategy but a long-term shift aimed at stabilizing operations and providing value to investors.
Investor Sentiment is Changing: Data Shows Why Efficiency Matters
Redmond also highlighted how investors are aligning with this efficiency-focused strategy. The drop in capital investments, from $15 billion in 2021 to just under $7 billion in 2023, according to BDSA, has made investors more cautious, pushing them to prioritize profitability and sustainability over speculative ventures. The Cannabis Investor Sentiment Report (2023) indicated that nearly 70% of investors are now focusing on companies that have a clear path to profitability, which explains the growing interest in operators who are embracing cost-cutting and operational efficiency.
Redmond and his team at Water Tower Research have been actively facilitating this shift. During the conference, Redmond mentioned they had held 14 meetings with operators and six or seven investor meetings, indicating that both sides are keenly focused on this new strategy. This is further supported by a Green Market Report study, which showed that 60% of cannabis investors are looking for companies that demonstrate financial discipline and transparency in their operations. Investors want to see companies become more efficient and productive while managing risks associated with the complex regulatory landscape in the U.S.
Financial Discipline and Growth: A Data-Driven Path Forward
Redmond’s overarching message was that the cannabis industry now requires both financial discipline and thoughtful, measured growth to thrive. BDSA reports that despite total U.S. cannabis sales rising, profitability remains a challenge for many operators. Rising costs of production, regulatory hurdles, and market competition have eroded margins for many companies. However, BDSA’s research shows that companies with a clear focus on operational efficiency and sustainable expansion have seen significantly better financial performance. In particular, companies that have focused on core markets and streamlined operations reported higher EBITDA margins, which investors are now closely watching.
Furthermore, Deloitte’s 2023 report noted that companies operating with a balanced approach—emphasizing both cost reduction and strategic growth—are likely to emerge as the strongest players in the next phase of industry maturation. This was evident in the financial performance of several cannabis operators who reported double-digit growth in key markets, despite scaling back aggressive expansion plans. Companies like Green Thumb Industries and Verano Holdings have strategically focused on maintaining profitability while selectively expanding into new markets with higher ROI potential.
Redmond’s “year of the core” strategy represents the broader maturation of the cannabis industry. As companies aim to solidify their market positions while remaining agile and competitive, financial discipline is no longer an option—it is a necessity backed by data. By focusing on lean operations and strategically targeting high-growth, high-profit markets, cannabis firms are better aligning with investor expectations and adapting to the realities of a competitive, highly regulated market.
Conclusion: A Shift Backed by Growing Data
The shift toward efficiency and mindful growth will likely define the cannabis industry’s direction for years to come. Data from New Frontier Data, BDSA, and MJBizDaily all suggest that firms embracing this operational shift are better positioned to survive and thrive in the evolving cannabis landscape. Redmond’s message of financial discipline and smart growth is echoed across the industry, with more operators focusing on their core operations to maintain profitability and keep investors engaged. The “year of the core” may not just be a strategy for 2024—it could be the blueprint for the cannabis industry’s future.
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