California cannabis growers struggle with fires and low prices – Lowell Farms (OTC:LOWLF), NewLake Capital Partners (OTC:NLCP)

Small cannabis farmers in California are are increasingly abandoning their fields as they face the double threat of destructive forest fires and falling pricesindicating a troubling trend for America's largest legal cannabis market. Industry experts expect this exodus to continue as conditions worsen.

Cannabis farmers are denied federal aid

The difference between cannabis growers and traditional farmers is that they are not eligible for government assistance due to marijuana's status as a controlled substance. Anthony Coniglio out of NewLake Capital Partners, Inc. NLCP stressed: “These operators do not have the option to approach FEMA (Federal Emergency Management Agency) to seek compensation for losses in a federal disaster area because it is classified as such.” With the increasing severity of wildfires, this lack of financial support makes the risks unbearable for many, Reuters' Mrinalika Roy reported.

Cannabis oversupply drives prices down

The economic situation for cannabis in California has also worsened since 2021. Oversupply has pushed wholesale prices for flower from over $2,000 per pound during the peak of the pandemic to around $1,200. “The lower wholesale price doesn't create enough wiggle room for people to accept the risk of wildfires,” Coniglio noted, pointing to a major obstacle to maintaining outdoor cannabis farms.

Read also: California company led by former cop turned cannabis CEO could enter hemp sector

Climate change increases insurance costs for cannabis

In addition, climate change is driving up insurance premiums and further reducing already low profit margins. Morgan PaxhiaCo-founder of Poseidon Investment Managementpointed to rising operating costs for electricity, water and labor, which could not be offset by crop prices, thus forcing more farmers out of the market.

The decline in cultivation is clearly evident in Lake County, a formerly thriving growing region in Northern California, where numerous farmers have given up their cultivation permits. Data from CRB Monitor shows a strong Over 20% decline in active business licenses in the first quarter of 2024 compared to the previous year.

California's cannabis market is losing ground

With cannabis sales of $5.3 billion in 2023, California's market is shrinking from its peak of $6 billion in 2021 and is now behind Colorado. “Industry dynamics continue to pose significant challenges for legal cannabis operators in California. As a result, other states' markets are viewed as more attractive,” George ArchosFounder and CEO of Verano Holdings Corp. VRNOFsaid Reuters.

Meanwhile, the financial difficulties of companies such as Company: Lowell Farms Inc. LOWLFwhich reported a 50% drop in revenue after ceasing cultivation in the second quarter of 2024, highlight the greater challenges facing the California cannabis industry amid declining prices and profitability.

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