A new report shows that the number of active marijuana business licenses significantly dropped for the first time in America this past year.
When it comes to the effects of the prolonged American economic downturn over the past several years, it appears that no industry is entirely safe from the ravages of the flailing empire. Once thought by industry experts and economists as one of the safest bets for long-term investment, the legal and regulated cannabis industry is no longer the recession-proof market sector, so many thought it would become when Colorado and Washington became the first two states to legalize adult-use marijuana in 2012.
With consistent annual revenue decreases in former strongholds like California, Colorado, and Oregon in the past few years, making money in the cannabis industry is no sure bet anymore. Emblematic of that former shine now lost is a recent report detailing the substantial decline in business licenses for new cannabis businesses in the United States for 2023.
A new study from CRB Monitor, a cannabis intelligence firm based in Nashville, Tennessee, that tracks and monitors licenses, found that, following a decade-plus of double-digit growth, active cannabis business licenses decreased for the first time in 2023.
According to the report, active U.S. cannabis business licenses, including those in medical and recreational marijuana markets, declined 4% from 2022 to 2023. What makes that number even more alarming for industry stakeholders in America is that, during that same period, the number of Canadian marijuana business licenses enjoyed an increase of 2%.
The combined number of active licenses in both countries had doubled almost every year since 2019. However, beginning in 2022, there were signs of an impending slide when reports indicated a year-over-year growth decline of an astonishing 28%.
The authors of the report note that active U.S. and Canadian marijuana licenses peaked at 51,000 during the first three months of 2023, dropping to 49,200 by the end of the year, a 2% decrease from 2022.
However, not everyone believes the downturn is necessarily a bad sign for the beleaguered market. CRB Monitor CEO Steve Kemmerling thinks the active license drop could potentially benefit the industry.
"The leveling off of license counts reflects a natural consolidation of a new market entering its early adolescence. As painful as it is for individual participants caught up in it, (consolidation) is a healthy reaction that will set up the industry for sustainable future growth," Kemmerling said in a recent interview.
"The leveling off of license counts reflects a natural consolidation of a new market entering its early adolescence. As painful as it is for individual participants caught up in it, (consolidation) is a healthy reaction that will set up the industry for sustainable future growth."
- CRB Monitor CEO Steve Kemmerling
Much of the decline is blamed on significant market downturns in more mature markets like California, which has suffered alarming revenue decreases over the past few years due to pressure from the illicit market and high taxes. According to the CRB Monitor report, the state lost about 2,300 active licenses in 2023, a decline of 19% overall.
Another potentially positive reason for the drop in active licenses is the departure of large multistate operators (MSOs) with vertically integrated licenses from markets like California, Colorado, and Oregon in 2023.
The study revealed that active vertically integrated cannabis business licenses declined more sharply than other license types during the same period, with the number of licenses tumbling by 42% between 2022 and 2023. The study's authors also noted that 2023 was the second consecutive year that vertically integrated licenses declined, with active licenses falling by 22% in 2022.
Ever the optimist, Kemmerling refers to the pattern as the "revenge of the OGs," as many of the large MSO companies failed to realize the benefits of scale while also struggling to compete against much smaller local producers and retail dispensaries.
"The original thesis of the vertically integrated, multistate operator having the advantages of scale and capital to dominate the regulated cannabis market has been thoroughly refuted. The economies never materialized, and the capital has been torched," Kemmerling said.
"The original thesis of the vertically integrated, multistate operator having the advantages of scale and capital to dominate the regulated cannabis market has been thoroughly refuted. The economies never materialized, and the capital has been torched."
- CRB Monitor CEO Steve Kemmerling
Overall, the takeaways from the study are a mixed bag. While the reduction in active licenses for the first may seem like an ominous sign for future growth, the authors point out that new and expanding state markets like New Mexico (600), New York (360), and Vermont (239) approved hundreds of new business licenses each in 2023.
In addition, Michigan, which is quickly becoming one of the best success stories in the American cannabis industry, added nearly 550 active licenses in 2023, making it the rare exception among the more mature market sectors in the United States. With Minnesota and Ohio set to come online with their respective adult-use markets later this year and into early 2025, there is hope that the figures will turn around and begin heading back in a more positive upward trajectory in the next few quarters.
However, the true answer to the question of how to fix the American cannabis industry lies more in the basic principles of economics, according to Kemmerling. Canada, an older market regulated at the federal level, is not experiencing the same issues as its American neighbor to the South. Much of that is due to one simple fact – Canada has one producer for every two retailers.
Conversely, there are currently two producers for every retail dispensary in the United States. "The producer-and-retailer ratio needs to be closer to 1-to-2, rather than the current U.S. numbers of 2-to-1. No other agricultural product has twice as many farmers growing it as shopkeepers selling it," Kemmerling says.
"The producer-and-retailer ratio needs to be closer to 1-to-2, rather than the current U.S. numbers of 2-to-1. No other agricultural product has twice as many farmers growing it as shopkeepers selling it."
- CRB Monitor CEO Steve Kemmerling
This imbalance is one of the main reasons why American political leaders and the White House must keep the vital and popular hemp sector safe and flourishing. With farmers capable of producing far more cannabis and hemp crops than are currently needed for recreational and medical cannabis consumers, the most logical solution is to funnel those products to states where marijuana is still illegal, but hemp is not.
Market forces are not to blame for the current state of affairs in the cannabis and hemp industries. The problem lies with corrupt politicians and the monopolistic powers funding and propping up Big Cannabis. It remains to be seen if enough lawmakers have the courage to work for the people or will remain obedient to their political and financial benefactors.