Cannabis companies still standing after reset are ‘well positioned to thrive’
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Over the past five years, the cannabis industry has experienced intense growing pains.
Capital overspending, regulatory friction and tax headwinds have taken their toll.
After all the industry’s recent challenges, some level of natural selection was bound to occur.
As a result, the companies still standing today are often being run by the most disciplined, resilient management teams, which means these businesses are well positioned to thrive.
The correction the industry has experienced has reset expectations and valuations to rational levels.
Unlike in 2019 or 2021, where investors were largely focused on companies showing strong growth and ability to acquire market share, today’s investors are focused on profitability and balance-sheet strength, prioritizing protection of capital.
This is an environment where experienced investors can identify high-quality businesses with real assets, strong leadership and sustainable operations – and partner with them on attractive terms.
Over the coming years, these conditions should result in strong risk-adjusted returns for the best operators in the industry.
The past five years have been a proving ground.
Operators have navigated volatile pricing, limited access to capital and the punitive effects of Section 280E of the Internal Revenue Code.
Merger and acquisition volumes have slowed, and more than $3 billion in industry debt is coming due by 2026. Many undercapitalized companies have exited the market or entered receivership.
But this dynamic has also produced a stronger cohort of companies – those that have weathered the storm by managing costs, maintaining compliance and building strong regional brands.
With valuations meaningfully lower than they were several years ago and sellers more receptive to creative structures, it seems that now could be a uniquely attractive moment to deploy capital into companies positioned for long-term success.
Identifying the most promising opportunities across the evolving marijuana landscape has certainly been a moving target.
In 2025, businesses with one or more of the following criteria have garnered interest from equity investors:
Those types of opportunities make compelling entry points for growth-oriented capital – especially when such opportunities are structured with appropriate downside protection.
Given the absence of exit liquidity in the cannabis industry across both performing and non-performing assets, deal structure is critical.
It’s best to rely on security structures that provide capital protection while aligning the investor with long-term upside:
That last structure allows investors to manage duration risk and internal rate of return (IRR).
Even in the absence of public market access or strategic M&A, capital can be distributed back to investors from well-run, cash-generative companies.
In the past 12-24 months, sophisticated operators have put together multiple creative structures that are very compelling, including:
These approaches aren’t just creative.
They offer a pragmatic response to the structural limitations of the industry, and they unlock new ways to generate returns.
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For the first time in years, federal momentum around marijuana reform is accelerating.
President Donald Trump has voiced support for both rescheduling marijuana and advancing the SAFE Banking Act.
In recent tweets, he noted: “The time has come for a more rational approach to cannabis,” and “We should not punish small businesses that follow state law.”
What’s notable is how much of Trump’s policy platform aligns with marijuana reform:
This alignment gives us optimism that marijuana reform could transcend partisan gridlock and usher in meaningful change – from capital market access to tax normalization.
Rescheduling or the passage of SAFE Banking could be the catalyst that reopens institutional capital and public market activity.
The next 12 to 24 months offer a critical window to invest in the future of cannabis.
The industry is no longer in a speculative phase.
Today’s opportunities are grounded in fundamentals: leaner operators, real revenues and, hopefully, a clearer policy horizon.
Today’s investors have the opportunity to support the next generation of industry leaders – those who have survived the storm and are now poised to grow with structural support behind them.
Pete Karabas is a founding partner at Key Investment Partners, a Denver firm that provides institutional-quality investment management for the cannabis industry. He can be reached at pete@keyinvestmentpartners.com.