Where Does The US Cannabis Industry Go From Here?

Although the cannabis industry has recorded impressive growth on a year-over-year basis, the sector remains under pressure.

After most public cannabis companies reported quarterly financial results, we wanted to issue an update on the industry and highlight operators which have reported strong growth on several key metrics.

From Latin America to the European Union (EU), emerging legal cannabis markets are opening all over the world. During the last decade, the global cannabis legalization trend has accelerated and we consider the trend to be a core pillar of our bullish view on the sector.

Over the next decade, we expect the global legal cannabis movement to continue to gain traction in some of the world’s largest economies (as measured by gross domestic product or GDP). We continue to view the United States (US) as the most attractive cannabis market, with the potential for federal cannabis reform to be the most significant potential catalyst for the sector.

Where Does The US Cannabis Industry Go From Here?

Although the legalization of cannabis in the US has taken longer than expected, new recreational markets are opening in conservative states. The growth of the recreational cannabis market in the US is another core pillar of our bullish view on the sector and this trend should become more apparent on a month-over-month basis.

According to the Marijuana Policy Project, states that legalized recreational cannabis generated more than $3.7 billion in tax revenue from the sale of it in 2021. We expect the amount of recreational cannabis sold in the US to increase in 2022 and believe the trend will not only continue but accelerate in future years.

When analyzing a state which just started to allow for the sale of recreational cannabis, we take several factors into account to determine how big the market could be in the first and in future years. Some of the factors we research include: the size of the population, certain demographic data, average salary, political beliefs, and more.

Which States Are Reporting Impressive Cannabis Sales Data?

By accurately analyzing the potential size of a recreational cannabis market in the US, we can better understand the companies that are positioned to benefit from having leverage to it. Some important state data that was reported earlier this year includes:

1. Massachusetts – According to the Cannabis Control Commission (CCC), recreational cannabis sales increased from $2 billion to $3 billion in approx. 8 months. In 2021, Massachusetts sold more than $1.3 billion of cannabis products (according to the CCC). Since the state limits the number of cannabis licenses, we are bullish on the opportunity for legal operators

2. Illinois – In March and April, the state reported more than $130 million of recreational cannabis sales. This marks the first time Illinois exceeded this amount in back-to-back months

3. Michigan – According to state data, Michigan sold more than $1.3 billion of recreational cannabis and $481 million of medical cannabis in 2021. In April, the state set a new record for monthly cannabis sales and reported almost $200 million of cannabis purchases

4. According to data from Arizona’s Department of Revenue, as demand for recreational cannabis has rapidly increased, demand for medical cannabis has fallen. This is a trend that we have noticed in several states that are generating more than $1 billion of cannabis sales per year and we are bullish on the opportunity in Arizona. According to Arizona’s Joint Legislative Budget Committee, cannabis sales taxes in March were higher than that generated from the sale of tobacco and alcohol combined.

The US Cannabis Industry is Impossible to Ignore

When comparing the growth of the recreational cannabis market between 2014 to 2016 and 2020 to 2022, we have noticed that states are reaching the $1 billion mark for annual cannabis sales at a faster pace. We consider this to be a bullish indicator for the US cannabis market and will monitor how the trend plays out in New Jersey and New Mexico (two of the newest recreational cannabis markets in the US).

Since 2020, several new recreational cannabis markets opened in the US and we have been impressed by how the industry has grown in such a short period of time. We believe the US cannabis industry is undervalued and will continue to monitor how legalization in new states benefits the entire sector.

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