Navigating Through The Potholes: U.S. Cannabis Retail Sales On Track For $100B

Colorado, the first state to end cannabis prohibition and with nearly a decade of documented commerce, may well be regarded as the industry bellwether.

As the chart illustrates, annual retail sales increased steadily through 2021 although growth rates began to decelerate following year 2. This was likely attributable in part to the introduction of legalization in additional states which created competition for the canna-curious tourism source of revenues. However, sales notably rebounded concurrent with COVID related Federal stimulus payments that carried into 2021.

As the charts suggest, last year marked the first year of negative comps with revenues down 21% YoY to ~$1.8B though remarkably in-line with 2019 (pre-COVID) in the wake of price compression, limitations on medical purchases (effective Jan 1 '22) and the ongoing competition from the illicit market. The question going forward is whether the Colorado market can hold steady at ~$1.8B.

If we make the assumption that Colorado is in fact a ~$1.8B market at its maturity, then based upon an extrapolation of the entire U.S. population, we may be on track to eventually reach ~$100B annual retail revenues in the US (we estimate ~$25B in ‘22). However, the longer federal prohibition remains in place, with all the attending costs along the food chain (i.e. 280E tax), the tougher it will be for the industry to get there.  

In 2015 we authored “The State of Colorado Year 1: The Co-existence of Legalized Medical and Recreational Use Marijuana Markets” in which we asserted:

"Of great interest are the questions of whether Colorado’s model proves to be a workable and desirable response to the voters expressed intentions for the legalization of marijuana use and what influence will the real and perceived results have on the development of regulations in other states and perhaps eventual national oversight. Most importantly, what can the developing marketplace trends in Colorado tell us concerning the viability of investment strategies in the burgeoning Cannabis Industry? The overall growth in the U.S. legal marijuana industry is substantial and will be fueled by the implementation of additional legalized markets across the country as momentum continues in favor of changes to existing federal laws.”

Looking through the lens today, we are seemingly on track to reach ~$100B.