10 Predictions For The Cannabis Industry In 2023, From A Nasdaq CEO's Perspective

By Jessica Billingsley, CEO of Akerna Corp KERN

Five years ago, I decided to leverage the knowledge gained from my 13+ years in cannabis and propose some predictions for the cannabis industry for the upcoming year. When those predictions turned out to be largely accurate, sharing my predictions for the cannabis industry's upcoming year became an annual ritual covering topics ranging from legislation across the globe to emerging trends in marketplaces and business-consumer relationships.

On an annual basis, I've gotten between 80% to 90% of my predictions correct.

This year, I am excited to continue this tradition with 10 of my top predictions for the cannabis industry in 2023:

Competitive market pressure will continue to mount, and differentiation will become essential for retailers and brands

The headlines coming out of the cannabis industry in 2022 have made one thing clear: as economic pressures related to the recession continue to manifest and cannabis operators in various states grapple with growing oversupply issues, the competition to make it to the top is fierce. These factors remain in play, and we will likely see the business landscape remain just as competitive in 2023. Increasingly, businesses must refocus on their fundamentals – those who do will be recognized favorably. Another result of this competitive market pressure I expect to see is additional distressed M&A as the industry self-adjusts to what are, at least right now, market realities.

The ancillary cannabis companies that emerge from the other side of this period of economic downturn will be the ones that are currently making swift, data-informed decisions

When we released our 2022 Midyear Cannabis Industry report, we noted the growing importance of making data-informed decisions as the cannabis industry continues to mature. This will only become more critical as we move into 2023. For the last decade, cannabis operators and ancillary companies have worked to establish the foundation for an industry that is safe, trackable, and that meets the needs of consumers of all kinds. There's no question that these last couple of years have been watershed years for the cannabis industry in both positive and negative ways. Against this backdrop, competition has only intensified as more and more brands continue to enter the marketplace.

An important side-effect of all this is that the more established the industry becomes, the more visibility we have into market trends, consumer behavior, and more. Companies that choose to take the initiative to focus on producing functional analysis from this growing pool of data – and act on it quickly – will be able to make effective strategic decisions ahead of their competitors. I predict a focus on data-informed strategy will stand out as a crucial edge by the time we inevitably make it through to the other side of this period.

Fintech firms will get scooped up by institutional players as their bloated valuations continue to rapidly decline

The past few years have been a textbook demonstration of unsustainable growth when it came to fintech valuations, but the recession is bringing a swift change to this trend.

At a conference I attended late summer, there was one undeniable takeaway: fintech valuations were on the brink of crumbling, and would do so quickly. Soon after, we saw valuations being slashed at astonishing percentages, with the Jefferies Group reporting that valuations of publicly listed fintech firms have plunged 70% over the course of the year. When coupled with rising interest rates, these firms are now ripe acquisition targets for institutional players looking to strengthen their own digital services.

I expect we will see a number of fintech firms being purchased across various sectors over the next year – and I don’t think cannabis is completely exempt from that trend, despite our unique payments challenges. As US federal action moves forward in incremental steps and banking issues are resolved, institutional players who have been waiting in the wings will be ready to enter the field and scoop up those who are struggling.

Brand differentiation will continue to become increasingly important for long-term success

As the cannabis industry has grown and matured, the field has become increasingly saturated as more brands have entered into the marketplace. It is simply insufficient today to merely be one of the many retailers selling cannabis products - companies must differentiate their brands in the minds of consumers. Your product cannot just be a staple; your specific branded product must be the staple.

While national brands are still few and far between, within individual states we see the most successful brands dominating competitors by a factor of 9 to 1. And yes, you read that correctly. These companies are the ones who are leading the pack in using information on consumer behavior to inform and guide their strategies in the marketplace. In just one example, across six recreational cannabis markets in 2021 (CA, CO, MI, NV, OR, WA), cannabis gummies accounted 70% of all edibles sales, while all other categories saw their market shares decline. Brands who have focused in on trends like these and adjusted their strategies accordingly have no doubt seen effective returns on their investments, while those who neglect to react to changing consumer behaviors likely see stagnate growth.

There is urgency behind getting your brand differentiated quickly, as I also expect the recession to impact consumer cannabis purchase habits. Although general spending trends follow patterns across other vice industries, cannabis consumers still have an illicit market to which they can retreat when their pocketbooks are pinched. Building a strong brand and delivering quality products will further your relationship with these consumers, encouraging them to keep their spend in the legal market.

2023 will be the of “Year of Partnerships”

Largely due to the results of the US midterm elections, it's looking like cannabis brands will have more time to grow at the state level before a national cannabis market is realized - and I believe we have already started seeing the effects of this.

Just this past October, Green Thumb Industries Inc. (GTI) announced a first-of-its-kind partnership with the convenience store chain Circle K that would allow medical patients to pick up cannabis products at shops attached to a number of Circle K locations across Florida. This development is just the beginning and demonstrates that there still remains plenty of opportunity for state-level operators to innovate to meet the needs of their growing consumer bases.

As 2023 progresses, we should expect to see on a state-by-state basis more cannabis brands forming partnerships with businesses in other industries to reach consumers in new and more effective ways, while positioning themselves for the larger national market that is to come.

Cannabis operators will increasingly ask their vendor relationships to transcend “transactional”

As part of the “Year of Partnerships,” this partnership mentality will also expand to include vendor relationships. Vendors will need to transcend what has historically been viewed a transactional relationship and fill their end of the partnership. As state-level operators continue to prepare themselves for the challenges of scaling to meet the needs of a future national cannabis market, all aspects of business operations will need to come under intense scrutiny. While expense is always an important factor in selecting a vendor with whom to do business, scaling a company to match the growth of a rapidly growing industry requires a wider range of considerations to prioritize. From ERP software to POS systems, seed-to-sale tracking to data analysis, making decisions that support your strategies in the long-term as well as the short-term will be a major differentiator of which brands emerge on the national stage.

In an industry that is as complex in terms of compliance and regulation as the cannabis industry, no operator can produce all of the various expertise required to succeed as a top brand. As such, appropriate vendors must be chosen based on the value of partnership that they bring not just in the present, but at every stage of a scaling business. The company with the lowest bid may suffice for a small business, but it will not necessarily be sufficient to support a mid-size or, eventually, national brand. The operations of cannabis companies grow exponentially more complex as they move towards a national presence, and finding a new vendor at every level of growth is an unnecessary, resource-draining undertaking.

We'll expect to see operators across the country focusing on the partnerships that will grow alongside them, and this will show in the ancillary market as time passes.

US Republican legislators shift more focus toward federally legal cannabis

With the economic climate being what it is, 2023 will likely see a practical shift in focus toward tax revenue and job creation driven by legal cannabis. For any who might doubt this, remember that 2022 saw the introduction of Rep. Nancy Mace's MORE Act, a fully Republican authored and co-sponsored cannabis reform bill which has been described as one of, if not the most, comprehensive cannabis legislation to be introduced. What’s more, COVID proved the strength cannabis bring to a state's economy. The coming year will further reinforce that cannabis reform is no longer just a Democratic issue.

Legal cannabis will establish itself in the American South as a major driving economic force

The past few years have seen significant movement towards the creation of legal cannabis markets within the southern states, with Mississippi and Alabama among the most recent to push forward with cannabis legislation. Perhaps just as significant, we have seen a recent surge in support for federal legislation among members of Congress hailing from the southern states - and even a comprehensive cannabis reform bill authored by a southern Republican (See: Rep. Nancy Mace's MORE Act).

The creation of legal cannabis markets in these states is somewhat of a special case, in that many of them are home to economically depressed areas that also happen to have traditionally good climates for growing these products. In this context, we will see legal cannabis act as a huge economic and social boon for the southern states as these markets come online, quickly creating jobs and tax revenue in areas that can most benefit from them.

Latin America will lead the pack in emerging global cannabis markets in 2023

When it comes to cannabis markets, discourse tends to be centered around progress made in North America as well as, increasingly, Europe - with Germany in particular generating a lot of recent buzzz. However, though there has been much news surrounding movement on a legal cannabis market in Germany, there remains significant groundwork to be laid, meaning it is more likely to see legislation passed there in 2024. Latin America, on the other hand, has seen its own cannabis industry boom over the last decade, with notable results. As such, emerging Latin American markets are closer to fruition, and growth in those existing markets proves significant.

As of 2022, cannabis use is legal in some form in at least a dozen countries across Central and South America. Uruguay, in fact, became the first country in the world to legalize cannabis use at the national level in 2013, and Brazil's cannabis market alone was estimated to be valued at $2.3 billion in 2029. Further, analysts at New Frontier Data have said they expect Latin American legal cannabis sales to grow from $7.3 billion in 2020 to $44.8 billion by 2025.

Colorado will lead the way in the creation of psilocybin markets and regulations, as it did with cannabis

On Colorado's ballot this year was an initiative to legalize the use, possession, and growth of psilocybin mushrooms and psychedelic substances, and allow licensed "healing centers" to administer the plants in supervised settings for people ages 21 and up. This measure passed, making Colorado the second state to pass legislation decriminalizing the use of psilocybin (Oregon legalized recreational use in a 2020 ballot measure).

As with cannabis, legalized for recreational use in Colorado a decade ago this Fall, expect to see Coloradans lead the way in forging the regulatory and compliance framework that will inevitably be essential as more states follow suit. One more point in the column of data-focused legislation.