With 200+ New Dispensaries And Four States Voting On Legalizing Cannabis, Could Market Expansion Squeeze Margins Further?

Federal decisions on cannabis rescheduling and the SAFE Banking Act could reshape growth paths for multi-state operators (MSOs) and spark stock volatility across the industry. Meanwhile, states like Florida are considering recreational legalization, opening the door to substantial new revenue streams.

In his latest report, Pablo Zuanic, senior analyst at Zuanic & Associates, examines the key trends driving the cannabis sector this quarter, including potential regulatory changes, challenges from rising dispensary saturation and price pressures affecting margins.

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Pain Points: Cannabis Prices Are Compressing Margins

In Illinois, retail flower prices averaged $8.87 per gram in Q3, down 10% year-over-year, with wholesale prices stabilizing around $2,000 per pound. Massachusetts faced similar pricing pressures, with Q3 retail prices at $4.85 per gram, marking a significant 18% year-over-year decline.

Zuanic also reported that Arizona saw the steepest retail price drop, with flower prices averaging $3.50 per gram, down 19% from last year.

The Q3 2024 report shows that declining cannabis prices are compressing margins, especially for non-vertically integrated operators who lack the cushion of internal supply chains. Companies with both cultivation and retail operations, like Green Thumb Industries GTBIF and Curaleaf CURLF are better positioned to withstand this price pressure by controlling production costs and capturing margins at multiple points in the supply chain.

A Crowded Pond

Florida led in dispensary expansion, reaching 679 stores by September, compared to 615 at the end of 2023. Illinois experienced significant growth as well, with licensed dispensaries doubling to 232, though per-store revenue has declined. Arizona, while having lower store density, also grew its number of stores from 143 in early 2023 to 168, further impacting revenue per store.

The disparity in density highlights competitive pressures in markets like Florida and Illinois, benefiting established operators like Trulieve TCNNF and Verano VRNOF.

Read Also: Edibles Surge In The Heartland: MariMed’s Play For Missouri And Illinois Cannabis Dominance

Regulatory Landscape And Market Projections

Future growth is anticipated in emerging medical markets such as Kentucky and Nebraska, while Florida's potential shift to adult-use could drive significant revenue increases for in-state operators.

On a federal level, expected decisions on cannabis rescheduling and the SAFE Banking Act could impact stock volatility, offering potential gains for companies with balanced portfolios, such as Curaleaf and Trulieve. Zuanic notes that a favorable regulatory shift may benefit companies with stronger balance sheets, while those with high debt levels may face consolidation risks.

Several MSOs have smaller but growing presences across states, including AYR Wellness AYRWF, which is expanding in Massachusetts and Planet 13 PLNHF as it focuses on its superstore concept in California and new entries in Florida.

These smaller operators are actively navigating the challenges of expanding retail and pricing pressures, underscoring the importance of strategic positioning in high-density markets.

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