Is the cannabis industry building momentum or losing steam? A recent report by analyst Pablo Zuanic at research firm Z&A provides valuable insights into the state of the industry, offering a comprehensive analysis of sales trends in 17 states. By examining the performance of different markets, we can gain a clearer understanding of the current state of the cannabis industry.
Mixed Growth Across States
According to official state data, Massachusetts and Florida experienced mid-single-digit sequential growth, while Illinois, New Mexico, and Washington reported low single-digit growth in the third quarter of 2023. On the other hand, sales declined in states like Missouri, Ohio, Oregon, California, Colorado, Nevada, and Arizona, with some of these declines being attributed to seasonal factors.
Notable Performances in Different Markets
Several states demonstrated notable performances in terms of sales growth. For example, Maryland witnessed a significant increase in total sales, totaling $270 million for the third quarter of 2023. This growth can be attributed to the initiation of recreational sales in July. Similarly, Rhode Island and Maine, smaller states with sales of approximately $60 million each, experienced around 20% growth. Michigan also reported a 10% increase in sales, driven by store openings and price stabilization. Connecticut saw an 8% growth, although the approval process for recreational stores was delayed.
Cannabis Market Economics and Pricing
Since December 2022, five states have introduced recreational cannabis sales, further expanding the industry. However, there is noticeable variation in retail prices, costs, and retailer spreads across different states. Retail flower prices have seen significant deflation in Massachusetts, Illinois, Arizona, Michigan, California, Washington, and Colorado. Maryland, on the other hand, experienced price increases sequentially. The third quarter also showed signs of price stabilization in certain states, such as Colorado, Michigan, Nevada, and Oregon. Retailer spreads remained stable in many states, but Maryland, Illinois, and Massachusetts displayed the highest spreads.
Regional Insights and Multi-State Operators (MSOs)
In Florida, volume growth has decelerated, indicating potential price gains. Maryland, Illinois, Ohio, and Missouri have experienced growth in total sales, with varying implications for MSOs operating in these states. MSOs with exposure to Maryland, for example, are likely to benefit, while Illinois and Pennsylvania are critical states for Cresco, Green Thumb, and Verano. Curaleaf has a diversified presence and may see growth in New Jersey and Maryland. Schwazze is the only MSO with significant exposure to Colorado and New Mexico, while GlassHouse, Gold Flora, and StateHouse derive most or all of their revenues from California.
The cannabis industry is showing mixed growth across states, with some markets experiencing significant increases in sales and others facing sequential declines. It is crucial for investors and traders to analyze these trends and understand the regional dynamics of the cannabis market when making investment decisions. By staying informed and keeping a close eye on key market indicators, stakeholders can navigate this evolving industry with confidence.