There was a time when you could build a cannabis company on a good pitch deck. Big market, inevitable legalization, first-mover advantage — that was enough to get a meeting, and sometimes enough to get a check.
Seth Yakatan thinks that era is over. On a recent episode of High Touch with Jake and Duffy, he laid out where the industry actually stands right now, and while he's not pessimistic, he's not pulling punches either. The core message is pretty simple: cannabis is being forced to behave like a real business, and a lot of operators built themselves around assumptions that don't hold up anymore.
Every emerging industry goes through a phase where the narrative does more work than the numbers. Cannabis just stayed in that phase longer than most. Capital kept flowing into companies that looked good on paper — projected growth, license value, brand potential — without much pressure to prove any of it out. Profitability was optional. The exit was always just around the corner.
That dynamic has shifted pretty dramatically. A lot of companies are now discovering that the story they've been telling doesn't hold up when someone actually looks under the hood. And that structural problem has been there the whole time. Yakatan's business partner has a line he likes to use:
"Cannabis isn't really businesses, it's just collections of assets that are trying to figure out a way to make 'em work."
If you've spent time with cannabis companies, you recognize that description immediately — the cultivation facility that doesn't quite match the retail footprint, the brand that exists on paper but doesn't move product, the vertically integrated operation that's integrated more by hope than by design.
Here's what's easy to miss in all the hand-wringing: deals are happening. Yakatan noted that deal activity in the first quarter was roughly comparable to what the industry had seen across the prior two years combined. That's not a boom, but it's not stagnation either. What it looks like is a market that's finally clearing — assets getting repriced, stronger operators getting more aggressive, capital getting more selective about where it goes.
The debt wall that had everyone nervous heading into last year got navigated more cleanly than expected. MSOs refinanced at significantly better rates. There are signs of outside capital starting to pay attention, including some interest from tobacco-adjacent players. None of this means the problems are solved, but it does mean the industry is in motion.
When Yakatan talks about what separates the operators who are going to come out of this well, he doesn't get complicated about it:
"You make as much money now as you possibly can, and you figure out a way to own your customer."
It sounds obvious, but it runs counter to how a lot of cannabis companies have been managed — chasing new markets, raising to extend runway, treating growth as a substitute for margin. The businesses he sees doing well right now are the ones that got profitable within their existing footprint and built real customer relationships rather than just transaction volume. That's what gives you leverage when the consolidation conversations start happening.
What's playing out isn't really a downturn — it's a transition from one phase to the next. The operators who built real businesses during the hard years are going to be the ones who define what cannabis looks like on the other side of this. The ones who were mostly running on narrative are finding out what they actually have.
Yakatan's broader take is that this is a good thing, even if it doesn't feel like it. Markets that mature get access to better capital, more serious partners, and more sustainable economics. Cannabis being treated like a real industry, with real scrutiny, is the prerequisite for all of that. The hype era was exciting. What comes after it is more useful.
Listen to the full episode here!