“Lean and mean” is the current approach at Lake County, Calif., cultivator Napa Valley Fumé, company founder and CEO Eric Sklar tells Cannabis Business Times.
The company is pivoting from a partnership with Eaze to more brand development. “Eaze has picked up those delivery dispensaries as they’ve gone vertical, and our entire focus is on our brands, both fumé and LAKE GRADE,” Sklar said.
The company plans to launch more brands this year, Sklar said, adding, “And [we’re] really excited because that was the goal from the very beginning, was to be a house of brands—a small handful of really super-high-quality brands. Whatever the price point, we want the quality to be one of the best in that niche.”
Changes at the company mirror some of the predictions that Sklar has for the wider cannabis industry in 2022—sustainable growth for businesses and more product development. But Sklar has additional hopes for the industry, both as a whole and specific to the Western U.S.
CBT caught up with Sklar, who has been involved in national, state, and local politics, and serves on the California Fish and Game Commission, to discuss his cannabis industry predictions for this year—from M&A to banking to possible California tax abatements.
1. Slow and Steady Industry Growth
Sklar said he envisions a continued decline from the "rollercoaster-y boom-and-bust growth" that the industry has seen in the past, including in Napa Valley Fumé’s home of California, and Colorado and Washington, the first states to legalize cannabis for adult use.
“There was a slowdown in growth in California after a really, really hot 2020,” Sklar said. “I think that COVID really pushed things up, and now it’s leveled off and is now growing at a more sustainable rate.”
2. Continuing M&A Activity
Sklar said he sees a consolidation in the number of brands providing the products and experiences that consumers come to expect. While this could play out over a multiple years, it will be facilitated in part by M&A activity, he predicts, which will continue to look similar to how it did in 2021.
“I think we'll continue to see an increased investment in the industry—probably lower valuations still, like we've seen the last year,” Sklar said. “But that's all good. Healthier valuations end up being better for the industry. Again, boom-and-bust bubbles don't really serve the industry, or most businesses, well. A few folks will do really well in a bubble, but most people will do badly.”
3. More Product and Packaging Development
As companies increase their footprints and their brands become more established with consumers, those companies will distinguish their products by including novel combinations of minor cannabinoids and terpenes, as well as unique strains and packaging, Sklar predicts.
“Do they come up with really memorable packaging, memorable looks, memorable feels, along with the really consistent and memorable use of the product?” he asked. “So, I think that’s all going to be a steady march. I think this year is going to be a real advance on it, but I think we’re going to see that happen over a multi-year period.”
4. Movement on Cannabis Banking
A bill addressing Section 280E of the U.S. federal tax code, which restricts tax deductions and credits for cannabis businesses, could pass Congress and be signed into law this year, Sklar said.
“I think the fact that [U.S. House] Republicans are putting forth their own [cannabis] bills for the first time ever is a really big deal, because I think it says that there's a hunger to do something,” he said. “I think it's because they all want to go home to their constituents and say, ‘I did something on cannabis this year.’ And so, I think that may result in something.”
5. Interstate Commerce in the West
Sklar highlights that Alliance for Sensible Markets founder Adam Smith and others are spearheading an effort for the U.S. Department of Justice (DOJ) to allow cannabis interstate commerce. The non-profit group is calling on the governors of multiple Western U.S. states to contact the DOJ for guidance on commerce of cannabis between states that have legalized for adult or medical use.
For his part, Sklar said: “I really am encouraging Gavin Newsom to get on board with this, and for them to write a joint letter, really asking the Justice Department to say, ‘Hey, listen, we’re not going to mess with this. These states have legalized it. And if those legislatures, governors, and residents of those states are okay with it, we are, too.’”
6. Tax Relief and Other Efforts to Fight Illegal Cannabis in California
California’s illicit cannabis market has continued to thrive, despite legalization of adult-use cannabis in the state. But, Sklar said, a multi-pronged approach could lead to significant changes as soon as this year.
The state’s illegal cannabis industry can shut down if the state does three things, Sklar outlined: eliminates the current cultivation tax in its legal industry and moves to “a more sensible tax structure” so legal businesses can compete with illegal prices, uses cannabis tax dollars to rid the state of illicit cannabis businesses, and grants amnesty to participants in the illegal cannabis space.
“It’s got to be a three-front effort, in my view,” Sklar said. “I don’t think any one of those alone really does it."