Is the cannabis industry losing momentum or gaining momentum?

A comprehensive analysis of sales trends across 17 states shows wide variation in the performance of the cannabis industry, according to a report by analyst Pablo Zuanic of research firm Z&A.

While seven states saw a sequential decline in sales, the other ten saw growth in the third quarter of 2023.

Mixed growth in different states

Massachusetts and Florida each posted mid-single-digit sequential growth, while Illinois, New Mexico and Washington posted low-single-digit growth, according to official state data.

However, sales in Missouri, Ohio, Oregon saw low single-digit declines and California, Colorado and Nevada saw mid-single digit declines. Arizona saw a sequentially low-teens decline, although this was partly due to seasonal factors.

Sales Trends by Market: Notable Achievements

Maryland, Rhode Island, Michigan, Maine and Connecticut showed remarkable performances. Maryland’s total sales doubled compared to the second quarter due to the introduction of recreational sales. In the most recent quarter, Maryland saw sales increase 2.2x to a total of $270 million thanks to the start of recreational sales on July 1, 2023.

Rhode Island and Maine, smaller states with revenue of about $60 million each in the third quarter of 2023, saw growth of about 20%.

Michigan recorded a 10% increase of $830 million in the second quarter of 2023 due to store openings and price stabilization.

Connecticut reported 8% growth with sales of $74 million, hurt by a delayed permitting process for recreational businesses.

Cannabis market economics

As of December 2022, five states have introduced recreational cannabis sales, further expanding the industry. These states include Rhode Island (December 22), Connecticut (January 23), Missouri (February 23) and Maryland (July 23).

There are significant differences in retail prices, costs and dealer margins.

Retail flower prices experienced significant declines in several states, with the greatest deflation occurring in Massachusetts, Illinois, Arizona, Michigan, California, Washington and Colorado.

The exception was Maryland, where prices rose sequentially. In addition, some states such as Colorado, Michigan, Nevada and Oregon began to show signs of price stabilization in the third quarter.

Retailer spreads remained stable in several states, with the exception of Maryland and a year-over-year decline in several states.

Maryland, Illinois and Massachusetts had the highest spreads.

The report also highlights the impact of sales per store on operator margins. The decline in average revenue per store may impact operators, and the increase in the number of stores in Massachusetts is a concern due to the three store limit per operator.

Regional Insights: Florida volume slowdown and growth in Maryland, Illinois, Ohio and Missouri

In Florida, volume growth slowed, suggesting possible price increases. Sales rose 4% sequentially, while mixed volumes increased just 1%. This suggests a sequential price/mix gain of 3%.

However, previous data showed that second-quarter 2023 sales increased 8% quarter-on-quarter, with volumes increasing 11%, indicating a negative sequential change in price/mix.

“For Florida operators, flower TRUL volumes for Trulieve TRUL decreased 9% quarter-over-quarter; -5% for Verano VRNO; AYR -3% AYR; Cura leaf +6% CURLF; Surterra +18% (private companies); Cansortium +10% CNTMF; Cresco -4% CRLBF; VidaCann +8% (private company); iAnthus +1% ITHUF,” Zuanic wrote.

Maryland saw a significant increase in total sales, reaching $23,270 million in the third quarter, largely due to the start of recreational sales in July.

“MSOs with exposure to Maryland will benefit, with varying impacts depending on their sales in the state. Ascend, Curaleaf, Green Thumb, TerrAscend and Verano have four stores in Maryland; Columbia Care, iAnthus and Trulieve each have three; most also do wholesale business,” Zuanic wrote.

“Many companies don’t break down their revenue by state, but Maryland will have a significant impact on Ascend, TerrAscend, iAnthus and MariMed. Other MSOs have more diversified state portfolios, but Maryland remains a positive driver.”

Illinois saw an increase in overall sales but indicates a maturing market. Ohio remains a medical market with potential for rapid growth if recreational sales are legalized. And Missouri experienced significant sales growth in both the recreational and medical markets.

Outlook for Multi-State Operators (MSOs)

Some important points are:

  • Trulieve faced challenges with a 9% decline in flower volume in Florida and a market decline in Arizona.
  • MSOs with a Maryland presence could benefit, but the impact will depend on Maryland’s contribution to their revenues.
  • Illinois and Pennsylvania are key states for Cresco, Green Thumb and Verano.
  • Curaleaf has a diversified footprint and could see growth in New Jersey and Maryland.
  • Schwazze is the only MSO with significant commitments in Colorado and New Mexico.
  • GlassHouse, Gold Flora and StateHouse generate most or all of their revenues in California.

Photo by Joey Csunyo on Unsplash.

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