Growth was slower than expected in 2022, but BDSA sees the industry growing to $42 billion by 2026
Despite a slowdown in mature markets that resulted in lower-than-predicted growth over the past year, analysts at BDSA still see the U.S. cannabis market reaching $42 billion by 2026, a compound growth rate of 11% for the industry, driven by new markets coming online.
According to a new forecast, sales are expected to reach $27 billion in 2022, up from $25 billion in 2021. But that’s a growth rate of only 7% as the industry, like others, was hampered by an inflationary environment and concerns about recession that dampened consumer spending.
Sales numbers in mature markets, such as California, Colorado, Oregon and Washington, mostly plateaued or fell, largely due to price erosion. Although lower prices are good for consumers, they mean lower revenue numbers across the industry.
But in new and emerging markets, like Illinois, Michigan and New Mexico, sales continue to be “brisk,” according to the forecast. In Illinois, for example, total cannabis sales reached approximately $2 billion in 2022, a 14% increase over 2021.
Medical Markets in 2023 and beyond
While the forecast for adult-use markets remains strong, the same cannot be said for medical-only states, where BDSA analysts are predicting “essentially flat” sales for the next five years.
According to CEO Roy Bingham, the decline in medical sales is directly related to the spread of adult-use legalization.
“As a state opens up its own adult-use market, consumers decide not to renew their medical cards, because they can access the product at the adult-use stores,” he says. “So in Michigan and Arizona, Illinois and even Rhode Island, we’ve seen declines on the medical sales side.”
In Arizona, for example, BDSA projects medical marijuana revenue will decline by about 30% from 2021 to 2022, and by 50% since 2020 — the last full year of medical-only sales.
Bingham says another factor affecting medical markets is the opening of a recreational marketplace in a neighboring state, noting that cross-border traffic to the adult-use state “takes the wind out of the local medical market.”
Pennsylvania, for example, is still seeing “good growth” in the state’s medical market, but Bingham says the opening of New Jersey’s adult-use retail stores to the east and the eventual opening of New York’s to the north are expected to affect the state’s totals.
“We are conscious that this cross-border traffic is going to be a factor with it being pretty easy for people to go from Philadelphia to New Jersey, for example,” he says.
— Brian Beckley
Overall, BDSA analysts, including founder and CEO Roy Bingham, expect growth of at least 12% in 2023 and 2024, due to maturing markets like Illinois, as well as the Northeast, where a rapidly growing New Jersey industry and an about-to-launch New York market together should add $5 billion in sales by 2026.
Bingham says he expects 2023 to be challenging once again for mature markets, but “there’s a lot of optimism and energy behind the newer markets. That creates an overall fast-growth industry growing faster than any other consumer products category. But it’s a mixed blessing if you’re heavily focused on the mature markets.”
Marijuana Venture caught up with Bingham to discuss BDSA’s 2023 forecast, including at look back at 2022, a look ahead at new markets, how inflation is affecting the industry and what product categories are driving growth.
Marijuana Venture: What happened in 2022 to slow down revenues, particularly in the older markets?
Roy Bingham: There are a lot of factors. And I want to emphasize, one should be careful about generalizing even between California, Colorado, Oregon and Washington, because they all have unique market characteristics. But in California, in particular, you’ve got this high-tax situation and high regulatory burden, and you have a very mature illicit market (as you do in Oregon, and Washington as well, for that matter). Consumers have looked at the prices of product available in the regulated environment and a significant number of them are still purchasing in the non-regulated world, where prices are lower.
Therefore, the regulated world has lowered prices in order to try and attract those consumers.
There’s also fierce competition. There has been excess supply. In California you have limited locations, because many municipalities decided not to allow cannabis dispensaries, so you’re talking about places where the illicit market is still more accessible than the regulated market.
MV: But we still saw growth and BDSA is projecting larger growth rates in each of the next two years. Why is that?
RB: Obviously, there are newer markets that are continuing to grow, and we shouldn’t ignore that. We’ve got Montana and New Mexico contributing to overall growth. Prices in those markets remain high. And you can see markets like Michigan continue to grow strongly. We’re expecting Michigan to get to $1.9 billion in 2022 (last year was $1.3 billion). Illinois is a big state with 12.5 million people. It’s expected to continue to expand, and it’s adding up to 185 new retail locations. New Jersey launched its adult-use market in April 2022, and it’s off to a very solid start. And we know that New York is going to open up when the regulators get their act together. That means the entire northeast area that has a population of about 30 million people is going to have access to adult-use cannabis. So there are many factors that are behind the growth and the continuing growth projection, which we have more in the 12% range for 2022 to 2023, 2023 to 2024, etc.
MV: Let’s look ahead to 2023 and beyond. What are some of the top-line projections for the U.S. industry in 2023 and beyond?
RB: In 2023, we see the U.S. market going to $30.5 billion. That’s growth of 12.5%. And then we see it growing again at 12.5% from ’23 to ’24, to about $34 billion. That will be aided significantly by the opening of new markets, like New Jersey, New Mexico, New York, and smaller ones like Montana and Vermont, on the adult-use side. In 2023, Connecticut, Delaware, Missouri and Rhode Island are expecting adult use.
And then on the medical side, we’ve got Georgia, Mississippi and South Dakota in 2022. And then in 2023, some that you and I might not have expected a few years ago, like Alabama, Kentucky, North Carolina and South Carolina.
MV: Do you have any numbers you can share about the strong growth you’re seeing in the new markets?
RB: In the eastern United States, if we look at Massachusetts, New Jersey, New York and Pennsylvania, which has a big block of 35 million people, there is huge potential for growth. We see that region at $4.2 billion in 2022. By 2026, we see that at $8.8 billion, more than doubling, and that’s a 20% compound growth in that area. And we see 2022-23 growing by 35%. So that gives us some context that the driver of growth has moved across country.
It’s also worth looking at Florida, which is becoming a fairly mature market. It’s been around quite a while as a medical market and is still growing very strongly: It’s growing about 36% this year. It was at $1.8 billion in 2021, and we project $4.6 billion by 2026, though we do expect adult-use to come in 2025.
MV: How is inflation affecting these numbers? Are we seeing the cannabis industry being affected by the larger economic forces that the country is facing?
RB: Inflation is obviously hitting the industry in terms of energy, production and labor costs. All of those costs are going to be challenging for the industry, especially at a time where large chunks of the industry are seeing price erosion. The gross margin environment and overall profitability is tough.
The other factor, of course, is that consumers are concerned about the threat of a recession and beginning to think more carefully about how they use their wallets. That is a factor behind the price erosion. You are seeing people choosing a smaller item than they might have done previously, or a smaller quantity when they go to the dispensary.
MV: Are there any product trends that jumped out at you from the data that folks in the industry might want to know about?
RB: We’re still seeing that consistent trend of flower declining as a percentage of total market sales in terms of revenue, while concentrates continue to grow more rapidly and edibles take up an increasing share of the newer markets as they open up. Typically, edibles will lag behind at less than 10% of sales at the beginning, and they’ll grow to somewhere around 15% or 16% of the market. That’s largely supply chain driven, but sometimes price driven because where supply is constrained, prices can be very high at first in a new market.
MV: Are there any other growth categories to watch?
RB: Vaporizer concentrates, in particular, show widespread appeal to both new consumers and long-established consumers. I should mention beverages as well, which we include in our edibles category. Beverages are definitely growing a little bit faster than the average edibles category.
People are looking for that product that gives them consistent results and they seem to be looking for a product that can be combined with the same kind of occasions when they might be consuming alcohol. It’s still a very small category — less than 1% of the total market — but based on our consumer analysis, consumers are looking for a beverage solution and a number of companies are improving their products, or new companies are coming out with new products.
This interview has been edited for length and clarity.