Cannabis Industry Sales Trends: Is Momentum Building or Slowing? A State-By-State Analysis For 3Q23

Is the cannabis industry losing steam or gaining momentum?

According to a report by analyst Pablo Zuanic at research firm Z&A, a comprehensive analysis of sales trends across 17 states reveals a wide variance in the cannabis industry's performance.

While seven states witnessed a sequential decline in sales, the other ten posted growth in the third quarter of 2023.

Mixed Growth in Various States

Massachusetts and Florida both saw mid-single-digit sequential growth, while Illinois, New Mexico, and Washington reported low single-digit growth according to official state data.

However, sales experienced low single-digit declines in Missouri, Ohio, Oregon and mid-single-digit declines in California, Colorado and Nevada. Arizona faced a sequential drop in the low teens, although this was partly attributed to seasonal factors.

Sales Trends by Market: Notable Performances

Maryland, Rhode Island, Michigan, Maine and Connecticut demonstrated notable performances. Maryland's total sales doubled compared to the second quarter due to the initiation of recreational sales. In the latest quarter, Maryland saw a 2.2x increase in sales, totaling $270 million, thanks to the start of recreational sales on July 1, 2023.

Rhode Island and Maine, smaller states with 3Q23 sales of about $60 million each, experienced approximately 20% growth.

Michigan, with $830 million in the second quarter of 2023, reported a 10% increase due to store openings and price stabilization.

Connecticut experienced an 8% growth with $74 million in sales, affected by a delayed approval process for recreational stores.

Cannabis Market Economics

Since December 2022, five states introduced recreational cannabis sales, further expanding the industry. These states include Rhode Island (Dec'22), Connecticut (Jan'23), Missouri (Feb'23), and Maryland (Jul'23).

In terms of retail prices, costs, and retailer spreads, there is a noticeable variation.

Retail flower prices witnessed a significant drop in several states, with the most pronounced deflation occurring in Massachusetts, Illinois, Arizona, Michigan, California, Washington, and Colorado.

Maryland was an exception with prices increasing sequentially. Additionally, the third quarter started to show signs of price stabilization in some states, such as Colorado, Michigan, Nevada and Oregon.

Retailer spreads remained stable in several states, with exceptions in Maryland and a decline in several states when looking at year-over-year figures.

Maryland, Illinois, and Massachusetts displayed the highest spreads.

The report also highlights the impact of revenue per store on operator margins. The decline in revenue per store averages can affect operators, and the increase in the number of stores in Massachusetts is a concern due to the cap of three stores per operator.

Regional Insights: Florida's Volume Slowdown and Growth in Maryland, Illinois, Ohio and Missouri

In Florida, volume growth decelerated, indicating potential price gains. Sales increased by 4% sequentially, while blended volumes only saw a 1% increase. This suggests a 3% sequential price/mix gain.

However, previous data indicated that sales were up 8% sequentially in the second quarter of 2023, with volumes increasing by 11%, indicating a negative price/mix sequential change.

“Regarding operators in Florida, flower volumes TRUL were down 9% sequentially for Trulieve TRUL; -5% for Verano VRNO; AYR -3% AYR; Curaleaf +6% CURLF; Surterra +18% (private company); Cansortium +10% CNTMF; Cresco -4% CRLBF; VidaCann +8% (private company); iAnthus +1% ITHUF,” Zuanic wrote.

Maryland experienced a significant increase in total sales, reaching $270 million for 3Q23, primarily due to the start of recreational sales in July.

“MSOs with exposure to Maryland will benefit, with varying effects based on their sales in the state. Ascend, Curaleaf, Green Thumb, TerrAscend, and Verano have four stores in Maryland; Columbia Care, iAnthus, and Trulieve each have three; most also engage in wholesale,” Zuanic wrote.

“Many firms don't break down sales by state, but Maryland will significantly impact Ascend, TerrAscend, iAnthus, and MariMed. Other MSOs have more diversified state portfolios, but Maryland remains a positive driver.”

Illinois saw growth in total sales but suggests a maturing market. Ohio remains a medical market, with the potential for rapid growth if recreational sales are legalized. And Missouri experienced substantial sales growth in both recreational and medical markets.

Outlook for Multi-State Operators (MSOs)

Some key points include:

• Trulieve faced challenges with a 9% drop in flower volume in Florida and a market decline in Arizona.
• MSOs with Maryland exposure could benefit, but the impact depends on Maryland's contribution to their sales.
• 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.
• GlassHouse, Gold Flora, and StateHouse derive most or all of their revenues from California.

Photo by Joey Csunyo on Unsplash.