Here are the top trends to watch out for in the marijuana industry this year, according to insiders.
Much like the "Roaring 20's", the current version of this century's third decade is proving to be just as impactful and pivotal to the trajectory of the U.S. economy and culture. The cannabis industry, which was on the wrong side of the law for over a hundred years, is now slowly and, at times, painfully, becoming a prosperous new channel of economic opportunity and medicinal and recreational relief for millions.
Colorado and Washington were the first states to legalize recreational marijuana a little over ten years ago. Now almost half of the states have legal adult-use cannabis, and close to 80% of the union has some form of a medical marijuana program in place. The combined legal and medical cannabis markets generated roughly $33 billion in 2022. Likewise, it is estimated that by 2026 that amount could be upwards of $52.6 billion.
According to official ranking statistics, cannabis is the sixth most valuable cash crop in the United States, even though it is still illegal at the federal level and in many states. However, it has not been a smooth and steady climb for the plant still listed as a Schedule 1 narcotic via the federal Controlled Substances Act (CSA). Early on, states like Colorado, Washington and California experienced incredible economic success as the only kids on the block.
Additionally, the pandemic lockdowns produced massive spikes in consumer demand and consumption as more and more Americans turned to cannabis to deal with the stress and anxiety of the COVID-19 crisis. The data analytics firm Headset reports that legal marijuana sales went up by an astounding 120% during the first lockdown year of 2020 and increased by 61% in 2021.
According to Fortune, Americans purchased $18 billion worth of cannabis during the first pandemic year, an increase of $7 billion over the previous amount in 2019. Economists and industry stakeholders at the time predicted that this was just the beginning and that the market would continue to expand at an unprecedented pace. Then 2022 happened.
By the end of 2021, lockdowns became more infrequent and less widespread. People went back to a more typical type of life. Likewise, the economy began to experience rampant inflation, particularly in the energy and food sectors. Massive layoffs by once invincible tech titans like Facebook, Twitter, and others caused a substantial contraction in the U.S. economy.
The cannabis sector, propped up by the artificial demand of the pandemic, was not immune to the downward spiral. In many states, especially the more mature markets of Colorado, Washington and California, overproduction, reduced demand, and cut-throat competition led to a significant decrease in price. Hundreds of cannabis businesses were forced to close their doors, and many in the industry were left wondering if the promises of unlimited growth and prosperity were just empty pipe dreams.
As 2023 begins, there are still many questions facing the once-vaunted and much-envied marijuana industry. However, with additional states attempting to legalize recreational cannabis and the federal government inching closer to an eventual end to prohibition, here are some trends to pay attention to over the coming weeks and months of the new year.
1. Major Consolidation in Key Markets
With continued falling prices due to overproduction and competition, expect markets like
Colorado, Washington, Michigan, and Massachusetts to experience more company failures, downsizing, and corporate consolidations as the fittest try to survive the current market corrections.
2. A Halt to Mergers and Acquisitions
With capital financing drying up, the once prevalent market for mergers and acquisitions has all but ground to a halt. Deals that used to top the $100 million mark rarely creep above $25 million if they occur, a trend that will most certainly persist in 2023.
3. The Delta-8 Situation
Due to the loophole provided by the Farm Bill of 2018, the hotly debated and controversial delta-8 THC variant that many companies have begun to use to compete with regulated cannabis markets is still going to be a burr in the side of legal marijuana companies. States where recreational cannabis is legal, have attempted to pass laws to address the delta-8 problem. However, enforcement is still an issue, so delta-8 will still be a headache in 2023 for many.
4. The THC Potency Obsession and Lab Shopping Problem
The issue of THC potency and the obsession on the part of companies and consumers to get the highest number possible came to a boiling point in 2022. From Florida to Nevada, testing labs were sued for misrepresenting THC content, prompting state regulators to fine and suspend many of those facilities for violations. Industry insiders hope that through education and continued rigorous enforcement, lab shopping by manufacturers will cease and shift attention away from cannabinoid content.
5. Redouble Legalization Efforts After a Mixed Effort in 2022
This past year, the effort to expand legalization hit a "red wall" in the more conservative areas of the South and West. However, the 2022 election did bring legal adult-use marijuana to Maryland and Missouri. Likewise, with President Biden's formal request to review whether marijuana should remain a Schedule 1 drug, the goal of ending the federal prohibition of cannabis gained significant momentum in 2022. The hope is that 2023 will provide another opportunity to incrementally add more states to the roll call of legalized marijuana across the country.
Other trends to watch out for over the coming year include unionization efforts, an end to Canadian cannabis business woes, New York's continued struggle to battle the illicit market after the launch of recreational marijuana, product segmentation, and calls for more licensing moratoriums.
New and emerging industries almost always go through a boom phase followed by a period of recalibration, maturation, and then hopefully, stabilization. The cannabis industry is no exception to these economic axioms. What makes it so unique is that it is still a major federal crime to produce and sell marijuana in the United States.
Nevertheless, it is still one of American history's most sought-after and hotly-contested sectors. This dichotomous nature only adds to the allure and instability of a flower that has the capacity to produce such a euphoric high and a mighty financial wallop.
