Do Any States Face The Risk Of A Dominant Cannabis Market Operator?

Is the American cannabis sector facing the prospect of just a few players dominating the market? While worries abound in some corners of the space, sources say that is not the current case.

Alan Brochstein, founder of 420 Investor and New Cannabis Ventures, told Benzinga that while a single dominant player would be bad for cannabis, no state currently faces that prospect.

"There are, however, states that have a few players that may dominate, especially early, but this tends to get resolved over time as competitors mature," he said.

Despite no state facing a single operator running its market, concerns remain, with advocates worried that competition will fall by the wayside.

Does Trulieve Dominate The Florida Medical Market?

One state, Florida, is often used as an example of the pros and cons of a supposed single player dominating a market.

Several MSOs have entered the Florida medical market in recent years, with Trulieve Cannabis Corp TCNNF outpacing the pack by a substantial sum. As reported by Marijuana Business Daily, September 2022 data from the state Office of Medical Marijuana Use shows that Trulieve operates 120 dispensaries. MÜV (59), Curaleaf Holdings Inc CURLF (51) and Liberty Health and Sciences (51) rounded out the top four.

Despite the company's strong dispensary presence, respondents weren't concerned.

"That market is pretty fully vertically integrated, which can lead to dominance in the early days," said Brochstein, offering data showing that Trulieve's market share has declined as other operators increase production capabilities.

Source: Alan Brochstein

Despite any possible declines in market dominance, Trulieve has a substantial lead on medical cannabis sold in Florida. From May 2019 to September 2022, the company sold 12.1 billion milligrams of THC. In second was Curaleaf, selling 3.3 billion milligrams during the period.

While dominant, operators and investors say Trulieve leaves room for other names to prosper in the market.

Michael Sassano, CEO of Somai Pharmaceuticals, said Florida is an ideal example of how a company can capture a significant market share while allowing other companies to thrive.

"Big players are always good anchors, but their presence does not hamper growth," he said.

Morgan Paxhia, co-founder and managing director at Poseidon and AdvisorShares Poseidon Dynamic Cannabis ETF PSDN, said companies that focused on scaling in a specific market have gained "large enterprise value, momentum and operating leverage," but not complete market control.

Undeterred by major players, Poseidon recently invested in the Florida brand Sunburn. Paxhia noted a possible adult use legalization vote in 2024 and sales starting in 2025 as prime factors.

"We see it as a market with room remaining for strong operators offering unique products," he said.

Various sources discussed other states. Illinois was the second-most mentioned.

A few names compete for market dominance in Illinois, but one company is outpacing the pack, like Florida. With the most enormous production canopy in the state and a growing national brand, Cresco Labs Inc CRLBF is seen as a dominant market force.

Today, the company has the potential to reach up to 630,000 square feet of cultivation canopy in Illinois.

However, like Florida, sources don't see Cresco's dominance as a sign of a single company taking over the market. Brochstein notes that dispensary caps limit Cresco or any other player from controlling the entire Illinois market. The company currently operates ten stores across the state.

"That market isn't suffering at all from domination at this time," Brochstein said.

Neither Trulieve nor Cresco provided comments for this article.

Looking Beyond Market Player Dominance

The amount of operators does not correlate to market success. Instead, Chris Becker, co-founder and sales director for Colorado cannabis brand The Honeybee Collective said numerous factors determine how a market's health and success are quantified.

Becker said that various factors might measure market performance depending on who is analyzing the results. He cited several possible metrics, including tax revenue generation, company balance sheets and the levels of unlicensed market activity post-legalization.

"Some of these metrics might be in conflict with one another, like protecting company profits vs. disappearing the illicit market," he said.

Operators and investors offered various takes on ideal markets. Becker supports open marketplaces with few or no dominant names.

"I tend to believe consumers are better off when there's a competitive market that's not monopolized by a few players," he said.

Brochstein also highlighted Colorado, citing strong supplies and profitable companies.

On the other hand, he said Oklahoma's high number of suppliers leaves little room for profit. Brochstein also noted, "Consumers benefit from the high number of supplies."

Somai Pharmaceuticals' Sassano prefers a semi-capped market.

"Open markets like Oregon and Washington have suffered with closures, while limited license markets like New York and New Jersey failed early on," Sassano said. He highlighted Nevada's fixed license with trade capabilities rules as ideal.

John Yang, CEO of the retail point-of-sale and commerce platform Treez called for a market balance.

"Larger operators bring scale, normalization and attention to the space, while smaller players typically bring the culture and choice that consumers are looking for and bridge the gap between legacy and legal markets," he said.

Still, Yang cautioned that balance isn't a sign of market success.

"California is certainly an example of having both but is struggling due to other factors – economic forces, taxation, the illicit market, et cetera," he said, citing optimism for New York's soon-to-launch adult-use market.

Photo by Terrance Barksdale: https://www.pexels.com/photo/marijuana-in-glass-jar-9146962/