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Part of the widespread appeal of cannabis is that it can help one stay happy and chill even when objective reality would warrant the opposite responses.

Thus, it seemed appropriate to pay extra for the CBD shot in a cappuccino from the local coffee truck. I knew I鈥檇 be writing about cannabis funding and exits, and wanted at least something potentially happiness-inducing.

For the moment, however, neither caffeine nor its cannabis-derived accompaniment have taken effect, so I鈥檓 left looking at the raw numbers. They are sobering.

First, venture investment in the cannabis space has fallen drastically of late. So far this year, just . Collectively, they鈥檝e closed on $294 million in 2022, which is less than a third the total raised in the first half of 2021.

At the current pace, this year is on track to see the lowest total funding since 2017, as illustrated in the chart below:

Why the rout? It鈥檚 not a sign consumption is drying up. Rather, the disconnect seems to be that while people still do like buying cannabis products, they have not shown the same level of enthusiasm for cannabis stock.

Like most not-yet-profitable growth sectors, cannabis companies have seen enormous declines on public markets in recent months, observes , CEO of and Arcview Ventures, a cannabis-focused investor. The public market performance played a role in leading聽 investors to cut back on private financings.

鈥淐apital markets have dried up,鈥� echoed , founder and CEO of , provider of an online commerce platform for cannabis companies. Treez is聽 one of a few startups to secure a big round this year, closing on a $51 million Series C.聽 In addition to strong fundamentals, Yang said it helped that the 6-year-old, Oakland-based company began fundraising in spring of 2021.

Layoffs, cutbacks and falling SPACs

Meanwhile, several of the highest-profile and most heavily funded private and public companies in the cannabis space are cutting staff and expenses as the investment environment tightens.

Bend, Oregon-based , an online platform for dispensary operators that has raised over $600 million in venture funding, 8% of its workforce, according to reports earlier this month. Another prominent upstart, delivery provider , also reportedly reduced in recent weeks.

On the public market side, , a provider of compliance tools for the cannabis industry, announced last month in what it described as a move to 鈥渁ccelerate its path to profitability.鈥� And , a cannabis consumer products company, also reportedly this spring.

Cannabis-focused companies that went public in the past couple years, particularly those that made it to market through SPAC mergers, have fared especially poorly. We compiled a list of seven, most of them venture or seed-backed, that carried out offerings, posted below:

All those are trading at a fraction of their former highs. Among venture-backed companies, , a greenhouse operator that produces medical-grade cannabinoids, has been particularly hard-hit, with shares shedding over 90% of their value over roughly the past year. , another venture-funded player in the medical cannabis space, has seen a similarly sharp descent.

But it鈥檚 not just newcomers. Even more established players in the space鈥攏ames like , and 鈥攁re also seeing shares currently trading at less than half their highs for the year.

What鈥檚 next?

Treez鈥� Yang sees the bearish market conditions pushing growth companies to do what they usually do under such circumstances; cut costs, shave losses and push to get to profitability sooner. He鈥檚 also hearing more talk about consolidation, as stronger players look to snap up struggling rivals.

Dispensary sales are also down, Yang said, noting that same-store sales have declined overall in the largest markets where his company operates. Much of this, he said, apparently stems from consumers looking for cheaper cannabis options. This leads them to favor black market channels over heavily taxed and pricier dispensary products.

Truth be told, dispensaries have not come close to dethroning local black market dealers as the prime source of pot. Of the estimated $75 billion to $100 billion in annual U.S. cannabis sales, only about 20% is currently sold through legal, regulated channels, per Finkle鈥檚 estimate.

He鈥檚 optimistic that number will rise. In fact, the expectation that dispensaries and other legal channels will gain market share over time lies at the heart of much of the cannabis investment thesis. Investors, Finkle said, are putting money into a market that already exists and a product that already has a huge consumer following.

“It鈥檚 the most interesting opportunity in one of the most inhospitable and restrictive capital markets,鈥� Finkle said. And while cannabis investors have thus far been disappointed by the paucity of federal action supporting cannabis legalization, there are plenty of exciting things happening at the state level.

Finkle is particularly pumped about prospects for growth in the Northeastern United States. New York, which legalized cannabis in 2021, is expected to open its first dispensaries later this year. Neighboring New Jersey, meanwhile, also legalized recreational marijuana sales last year, and several retail operations are up and running.

So, while public market sentiment and startup investment in the cannabis space may be down, there are various aspects of the industry that are looking up. We鈥檒l see in coming quarters if it will be enough to bring back some of the more beaten-down valuations.

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