No Signs of Cannabis Growth Slowing

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Cannabis markets across North America are booming. This week we shared updates from BDSA on several mature and newer markets for January as well as data from Illinois for the month of February. Growth was strong across the board, with acceleration in California, which grew 28.6% from a year ago, and extremely vigorous gains from a year ago in the most mature markets of Colorado and Oregon, which increased 35.5% and 48.2%, respectively. Also, on Friday evening, Florida data revealed that the number of medical patients has surpassed 500K, or 2.3% of the entire population. In the most recent week, growth from a year ago was 55%.

Florida’s growth has been aided by the addition of telehealth last year and perhaps as well the recent introduction of edibles. Another factor may be population growth during the pandemic. The state doesn’t report revenue. Instead, it shares weekly data on units dispensed, which has grown substantially faster than the patient count. Year-to-date, medical cannabis units dispensed have increased by 84% compared to the same period a year ago, while flower sales have grown 139%. This marks a gain from Q4 for medical cannabis products, which grew 75% from the prior year. Flower sales were just ramping up in late 2019, and that growth has slowed from 189% but remains extremely strong.

As we think about how the rest of 2021 might play out across America, we are quite optimistic that the robust revenue growth will continue. Of course, each market is unique, and states will grow at different rates. We have some concern that overall per capita consumption rates could decline somewhat mid-year compared to a year ago due to heightened demand during the pandemic and non-recurring stimulus checks, but several factors are likely to overwhelmingly offset any potential slowdown in same-person consumption.

We think one of the biggest drivers of legal cannabis market growth is the shift from the illicit market. The pandemic proved to be very helpful on this front, as states which had previously not permitted delivery or curbside pickup did so, and this changed the market in a big way. Consumers can now order cannabis online the same way they order other goods, something the illicit market can’t match. The very solid growth in mature Western states, especially for flower, is a sign that the legal market is continuing to convert illicit market consumers.

New markets opening are another growth driver, and this year Arizona has already quickly permitted adult-use sales. New Jersey is ramping up its medical program and will add adult-use later this year. Virginia, which just began sales to patients in late 2020, will be continuing to roll out its medical program, and it will also be adding flower, which should boost demand.

Growth in markets that are already legal for adult-use can often be constrained at first, limited by not enough supply and/or not enough points of distribution. So, newly legal markets, like California, Illinois, and Michigan, all of which have had constraints, have the ability to exhibit strong growth for a sustained period of time as the infrastructure continues to come online. This can be the case in medical markets as well, like Pennsylvania.

For public companies, the recent uptick in M&A points to even faster growth than the organic growth rates the overall legal cannabis industry will generate. The deals being done appear to be very accretive to the acquiring companies, and we continue to expect substantial tuck-in acquisitions ahead in this highly fragmented industry.

The legal cannabis industry is in its early days, with new markets opening and existing ones continuing to ramp up as supply and distribution expands. Even in the most mature markets, there is ample evidence that legal operators are taking share from the illicit market as well. Look for the industry to continue to generate strong growth over the balance of 2021.

Invest in Leading Cannabis Companies
This week’s newsletter is sponsored by Global X

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New Cannabis Ventures publishes curated articles as well as exclusive news. Here is some of the most interesting business content from this week:

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Alan & Joel

Exclusive article by Alan Brochstein, CFA
Alan Brochstein, CFA
Based in Houston, Alan leverages his experience as founder of online community 420 Investor, the first and still largest due diligence platform focused on the publicly-traded stocks in the cannabis industry. With his extensive network in the cannabis community, Alan continues to find new ways to connect the industry and facilitate its sustainable growth. At New Cannabis Ventures, he is responsible for content development and strategic alliances. Before shifting his focus to the cannabis industry in early 2013, Alan, who began his career on Wall Street in 1986, worked as an independent research analyst following over two decades in research and portfolio management. A prolific writer, with over 650 articles published since 2007 at Seeking Alpha, where he has 70,000 followers, Alan is a frequent speaker at industry conferences and a frequent source to the media, including the NY Times, the Wall Street Journal, Fox Business, and Bloomberg TV. Contact Alan: Twitter | Facebook | LinkedIn | Email

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