'Worsening Trends' In Cannabis Retail Are Here: Can The Downtrend Reverse?

Publicly traded cannabis companies have seen their stock prices plunge over the past year, with investor sentiment mainly dependent on news around federal cannabis legalization, Cantor Fitzgerald analyst Pablo Zuanic said in his recent note.

What Happened

The analyst took a closer look at sales trends across 10 states where some of the multi-state operators, such as Cresco Labs CRLBF, Curaleaf Holdings Inc CURLF, Green Thumb Industries Inc GTBIF and Trulieve Cannabis Corp TCNNF, operate.

The worsening growth trends are evident in Illinois, Pennsylvania, Florida, Arizona, California, Ohio and Maryland, Zuanic said, adding the Massachusets, Michigan and Nevada markets are an exception to that rule.

"Hard data do not look encouraging so far in 3Q22," he said.

More Verticalization

In response to the retail price pressure, the state's producers in Illinois and Pennsylvania opted to increase verticalization, with retailers putting more of their own products on shelves.

Illinois saw a 4.6% sequential drop in August marijuana sales to $129.4 million after breaking a record in July with the largest monthly sales year-to-date.

"Despite the lack of growth, IL remains one of the rec states with the most attractive economics," Zuanic said. In addition, the state recently issued 185 total adult-use cannabis dispensary licenses to social equity applicants. Still, cannabis equity advocates and business owners warned recently that Illinois' social equity program is "on the verge of collapse" due to the state's laborious rules and regulations.

A Drop In Sales

Florida cannabis sales dropped to $146.2 million in August, from $148.2 million in the prior month as the market continues to see price pressure and more discounting.

Marijuana sales in Arizona have been declining in the third quarter of 2022 as well, while a downward trend is also seen in wholesale prices. Zuanic added that the market "reached 'maturity' much earlier than expected," given that it launched in January 2021.

California, Ohio and Maryland also reported a quarter-over-quarter decline in cannabis sales in the third quarter. California has the lowest prices nationwide.

"As state markets become more competitive (as growth begins to ease and more licenses are issued), we would expect increasing verticalization, with retailers going upstream and growers going downstream (all this in the current context of no interstate trade), especially those with access to capital," the analyst said.

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