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Update From Illinois

Those watching this space have seen commentary from High Yield about adult use legalization in emerging states such as Illinois. Having a presence in multiple markets across the country gives us a first-hand view into both mature markets and emerging markets like the Land of Lincoln. As Illinois became the first state to legalize adult use via legislation (the ‘Cannabis Regulation and Tax Act’), we pondered if the state could learn from California’s experience. However idiosyncratic, California’s roll-out was a lesson in microeconomics and the Law of Unintended Consequences. Not that anyone needed an advanced degree to anticipate how issues like excessive taxation might nudge consumers into the illicit market and blunt the positive impacts of legalization. (No pun intended.)

A piece by High Yield in December (“Legalization Looms in Illinois”) here on CBE looked into the prospects of a successful launch in Illinois. Signs pointed to potential trouble. Product shortages were to be expected. But the level of unrest and rancor among medical patients, who had been reporting shortages of flower for months in the run-up to legalization, was something of a surprise. These are consumers accustomed to reliable access for the products needed to address a variety of issues. We pointed out two seemingly obvious truths in writing on the subject last July: medical users don’t disappear and shouldn’t be left behind.

We found ample evidence to support why consumers with a medical mindset need to be included in a burgeoning market. Consumer data collected from those who identify as “medical” users showed a drop in the use of medications across the board following adult use legalization. Prescription and over-the-counter pain and anxiety relief as well as antidepressants and sleep aids all saw double-digit declines in usage. (See our whitepaper for more. These results align with findings elsewhere.) Until we learn otherwise – preliminary, observational studies seeking to cast doubt on cannabis as pain relief and sleep aid notwithstanding – we should consider cannabis at worst a viable alternative to pharmaceuticals. That adult use legalization could disrupt treatment regimens for current users in a medical state seems like a ripple effect of the worst kind.

Yet that is exactly what has happened. As recently as January 19, the Chicago Sun-Times interviewed a number of patients and prominent dispensary owners in the Chicago area about the empty cupboards for medical patients. While all the parties involved in bringing the market online point in different directions to explain the shortages, patients are forced to scrounge for product. Flower is in especially short supply. Perspectives from the industry vary but the conservative estimate has the Illinois market under-served for the duration of this year.

And that’s to say nothing of consumers buying on the heavily taxed recreational market. With limited operating hours – some stores are only allowing recreational sales for a few hours per day – and purchase limits, the newly legal market stands little chance to disrupt the illicit market. Nor are new consumers nearly so likely to give cannabis a prolonged trial if selection, reliability, and access remains challenging. In a recent consumer study, done in advance of a more comprehensive look at the cannabis consumer’s reaction to such market dynamics, the predictable factors ranked high on a list of reasons for users to remain in the illicit market. Price and value rank at the top but so too does convenience. With an influx of demand from disenchanted medical patients, thrifty recreational shoppers, and renewed interest in cannabis, the illicit market stands to benefit as seen in other markets. If the window for recreational sales only opens briefly during work hours, many would-be legal consumers will have little choice. A robust illicit market will be given an opportunity to entrench with consumers. State Senator Heather Steans, one of the chief architects of the adult use law and longtime legalization advocate, had perhaps the most worrisome take on the issue: “Hopefully, within six months or a year or two, the supply gets ramped up so you’re not having the same challenges,” she was quoted as saying in this interview. Two years is a long time to wait.

Mike Luce

Mike Luce

Prior to co-founding High Yield Insights, Mike Luce led multi-million dollar insights engagements with Fortune 100 consumer goods companies. Mike has nearly 20 years experience developing market insights for some of the world’s leading consumer brands, including Procter & Gamble, PepsiCo and General Mills, and retailers, such as Wal-Mart and Kroger.

High Yield Insights applies best practices and capabilities drawn from that experience to the dynamic cannabis industry.

Mike can be reached directly at [email protected]

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