By Roy Bingham

With nearly 80% of adults open to consuming cannabis in fully legal states and cannabis regulations loosening across the country, markets are continuing to develop at an ever-increasing rate. However, current legal markets differ greatly in how they’ve developed in terms of sales growth rates, product format preferences, consumption patterns and consumer tastes. By harnessing data that reveals insights into current market trends, newer markets will be primed to win with a solid foundation for success. 

The U.S. Legal Landscape 

When compared to more mature industries like beverage alcohol, the cannabis industry has significant opportunities for growth. Cannabis consumption continues to steadily increase across the country. The number of adults who reported past six-month cannabis consumption in fully legal U.S. states has risen from 43% in Spring of 2021 to 51% in Spring of 2022. In Spring of 2022, a whopping 77% of those surveyed either reported cannabis consumption or claimed to be open to consuming in the future, according to BDSA Consumer Insights. In fact, 65% of those who consume inhalables, including flower, vapes and pre-rolls, claim to consume at least daily. 

When looking at the current legalization landscape across the United States, the market has completely transformed from what it was five years ago. While in the past cannabis was restricted across most of the country with some islands of legalization, 75% of U.S. adults now live in states that allow at least medical access to legal cannabis. Even then, those in restricted markets can obtain legal cannabis in neighboring states.  

Acceleration of the Speed to Market 

Several best practices and efficiencies have emerged as more legal markets develop, impacting the speed at which newer medical markets are expanding. These practices have begun to influence more risk-averse governments to ease restrictions and adopt quicker timelines to market. One practice that was especially effective in the Arizona market was the speed of adult-use license approval for operating medical licensees. By the start of adult-use sales in January 2021, 86 of the 130 existing medical licensees were approved for adult-use sales. While some areas, particularly Tucson, had low retail availability, additional licensees came online fast. This speed of retail licensing stands in sharp contrast to the California market launch. California took more than a year to launch legal sales, and had less than 200 retail storefronts active as of the start of adult-use sales on January 1, 2018, a much lower retailer count per capita than Arizona had at its launch. 

Many factors play into how fast a new legal market develops, including alignment of state government, retail development and production capacity versus demand. While some states have taken up to three years to open adult-use sales, Arizona was the fastest state to open an adult-use market, switching on sales almost three months after the state statute passed in late 2020. 

Emerging Markets to Watch 

The Missouri market has seen rapid growth since the launch of medical sales in late 2020, with its medical-only market reaching an unexpected high of $210 million in 2021 and seeing 200% growth this year to date. With 203 retail stores, and 89 processors and 65 growers, this market has a sound structural foundation. The recent category share makeup in Missouri has indicated market maturity. Flower in the state makes up less than 50% of category share dollars, inching toward the typical flower category share in many legacy markets, which is around 30 – 35%. The Missouri market is expected to grow to around $1.3 billion dollars in total sales by 2026 should an adult-use market open in early 2023 as state regulators currently expect, though investment in cultivation capacity will be critical for success.

Since launching sales on April 21, 2022, the New Jersey market has seen steady growth. Total monthly sales in New Jersey have grown ~30% between May 2022 and September 2022, all while dealing with headwinds from high average retail prices and low retail availability, as the state had one of the lowest per capita retailer counts in the country when adult-use retail launched.

Other emerging markets, such as Montana, New Mexico and Rhode Island are seeing some softening in sales. Illinois was the first market to see a decline in monthly sales within the first year of opening, which could be due, in part, to heavy cross-border shopping from Illinois consumers seeking out cheaper products in the nearby Michigan market.

Consumer Trends and Product Innovation Out West

In California, category mix is shifting as the market becomes more mature. The share of rosin concentrates dollar sales within the dabbables category has doubled between early 2021 and fall 2022, and the average retail price of other premium products is being pushed down as the price of flower falls. Edibles have increased in quality, with better bioavailability and more consistent dosing, and offer a unique opportunity for brands to focus on packaging. Cannabis pricing is on the decline across all mature markets.

Cannabis drinks are still a small category in most markets, but interest in these products is rising as science continues to advance quickly. While the beverage subcategory has underperformed the lofty expectations from years past, the segment is still seeing growth and regaining interest as more brands enter the space. Cannabis beverages are a segment that is expected to grow significantly over the next few years, as cannabis use becomes more widespread across social occasions for many consumers.  

As more markets continue to develop, especially in the Midwest and the Northeast, the cannabis industry will continue to grow as consumer participation expands and competition ramps up, driving product innovation.