Analyst Inside Look: Trends And Opportunities In Ohio's Emerging Recreational Cannabis Sector

In an exclusive interview with Benzinga, BDSA analyst Brendan Mitchel-Chesebro provided a detailed analysis of Ohio's emerging recreational cannabis market.

Ohio Cannabis: Trends, Challenges And Cross-Border Dynamics

Mitchel-Chesebro delved into the market's dynamics, including consumer preferences, cross-border sales impact, local branding significance and the challenges posed by regulatory and geographical factors.

As of Q3 2023, Ohio's cannabis market composition is primarily flower-based, accounting for 53% of sales.

Other categories include edibles (14%), vapes (23%), extracts (4%), and a small segment (2%) for shake/trim products.

Ohio presents a unique landscape as a new market with limited licensing, potentially leading to considerable cross-border purchasing and a subsequent spike in sales following the launch of adult use.

Shifting Consumer Preferences And Emerging Trends

Ohio's cannabis market, for the moment restricted to non-smokable forms like vaping, is poised for change with upcoming regulatory updates.

The market, initially dominated by informal purchases (60% from friends or family in 2020, now reduced to 21%), is shifting towards regulated dispensaries (from 22% to 33% in the same period).

The growing popularity of disposable vape products in 2023, combined with these changing consumer trends, indicates potential for increased sales and engagement, especially with the introduction of adult use.

Growth Potential: Extracts And The "Shake/Trim/Light" Category

Extracts, with only 4% of Ohio's current cannabis sales, are expected to see growth, especially as consumer preferences shift towards user-friendly options like vapes.

Similarly, shake trims, comprising 2% of sales, show potential for expansion, mirroring trends seen in states like Illinois where high prices and limited licenses have boosted their market share. Thus, Ohio could experience a rise in retail prices following the launch of adult use, likely leading consumers to seek out more cost-effective products like Shake Trim.

Strategic Branding And Market Opportunities

In terms of branding and marketing strategies, selling pre-ground flowers in a format similar to loose tobacco offers a way to appeal to value-conscious consumers while also providing an entry point for those new to cannabis.

The currently absent pre-roll market, especially infused varieties, is expected to grow post-regulation changes.

Disposables, accounting for 16% of 2023's vape sales, also show growth potential with the onset of adult use.

Additionally, edibles present a chance for brands to build a strong regional presence, a strategy proven effective in other states and particularly promising in Ohio's substantial edible market.

Local Brands Dominate Ohio's Cannabis Market Amidst Multi-State Competition

Mitchel-Chesebro remarked on an interesting trend in Ohio's cannabis market. Even though 70% of the brands in Ohio in Q3 2023 were multi-state brands, eight out of the top ten best-selling brands in Q3 2023 were Ohio-exclusive brands, including Klutch Cannabis, Buckeye Relief, Butterfly Effect, Certified Cultivators, Riviera Creek, Firelands Scientific, Pure Ohio Wellness and Woodward Fine Cannabis. 

This scenario suggests a strong presence and influence of local, single-state brands in the market. These local brands have a strong connection with Ohio's consumer base, making them potential targets for acquisition by larger, multi-state operators looking to expand their presence in the state.

Medical Market Trends Shaping Ohio's Cannabis Landscape

In Ohio, cannabis products align with both medical and adult-use consumer preferences, often indicating a need for pain relief or sleep aids, as evidenced by a tendency towards higher THC dosages.

BDSA's data shows that most of the state's top ten edibles contain over 100mg of THC per package, typical for medical markets. Continuing to allow such high-dose edibles could open growth avenues for brands in this niche.

Additionally, the presence of minor cannabinoids like CBN and CBG in gummies mirrors trends in other markets, pointing to medically branded products designed for specific uses and effects.

Cross-Border Dynamics 

Mitchel-Chesebro highlighted Ohio's strategic position bordering states like Indiana, Kentucky and West Virginia where cannabis is limited or illegal, potentially driving significant cross-border sales, especially from Indiana.

However, he noted challenges for Ohio areas near Michigan, such as Toledo, due to Michigan's lower cannabis prices.

Additionally, Pennsylvania, with higher prices and product restrictions, could become a key source of cross-border traffic into Ohio, particularly if Ohio initiates adult-use sales ahead of Pennsylvania.

Photo: AI-Generated.