A new report from ArcView Research and BDS Analytics has found that cannabis sales haven't quite lived up to expectations. But don't get bummed out, the report suggests that sales will pick up steam and jump even higher.
The June 2018 State of Legal Marijuana Markets forecasted that sales in 2018 would hit $12.9 billion, but they fell short at just $12.2 billion. The shortfall was blamed on the delay of the start of Canadian adult use cannabis sales and the bumpy transition in California's market from medical to fully legal.
"Despite the speed bumps in Canada and California, the basic story line prompting an explosion of investment in the industry in 2018 remains intact," said Tom Adams, managing director and principal analyst at BDS Analytics. "The gradual legalization around the world of a plant which humans have been happily consuming for millennia is creating one of the largest industry-growth phenomena in history."
Canada didn't begin its adult use sales until October 17, 2018, three months later than originally planned. Still, the report noted that total spending in Canada more than doubled from the medical only sales of $569 million in 2017 to $1.2 billion in 2018.
California is actually expected to drop from $3 billion in cannabis sales in the legal medical market in 2017 to just $2.5 billion in the fully legal market of 2018. Part of the problem is the well-documented illegal market that has continued to thrive in the state. The high level of taxation has prompted many producers to operate in the illicit market. The existing illicit market customers saw no reason to pay the much higher prices (in some cases 77% higher) and the producers were angry at having to turn over as much as 50% of their income to the state.
It wasn't all bad for California. The report said that it believes prices will eventually drop for customers bringing them into licensed dispensaries. Also, the current lack of enforcement of new regulations has led to a grey market. The authors believe that producers will eventually join the legal market as protective laws begin to expire.
The report said that California and Canada will be the world's largest cannabis markets for years to come and noted that it was treating the state of California as if it were a country on its own. Colorado, which had been ground zero for legalizing adult use cannabis, comes in third. This market is still forecast to hit $1.7 billion in sales by 2022.
The analysts believe that worldwide spending will grow 39.1% to $17 billion in 2019 and will eventually reach $31.6 billion in 2022. This would be a 26% compound annual growth rate between 2017 and 2022.
That growth will be fueled by new states like Nevada, which is on track to record over $500 million in total sales for 2018. Massachusetts, which was slow to implement adult use cannabis regulations reported sales of over $7 million in just three weeks of legalization and only two retail stores.The state is projected to reach sales of $918 million by 2022.
Michigan has also joined the ranks of state becoming fully legal as a result of the most recent mid-term elections. New York and New Jersey both plan on legalizing adult use but with no exact timetable on when those sales will begin.
Troy Dayton, CEO of the Arcview Group said, "This year, we also saw two of the worlds three largest legal medical markets - California and Canada - transition to legal regimes that allow all adult consumers to buy cannabis, while voters in the other top-3 market - Michigan - approved a ballot measure to do the same."
The report said, "Adult-use spending rocketed from $2.7 billion in 2017 to $6 billion in 2018, while spending on medical cannabis shrank from $5.9 billion to $4.5 billion. In 2022, adult-use spending is forecast to reach $14.3 billion and medical $7.9 billion."
Cannabis consumer's tastes are also changing as more products are made available. The analysts found that traditional flower is becoming less desirable as other forms are becoming more popular. Spending for flower has declined, while consumers are buying more edibles and oil products used in vapes.
"In 2014, when Colorado and Washington (July onward) were tracked, flower accounted for 64% of total sales. Concentrates held 16% share and edibles nearly 12%. Flower prices in January 2014 were $7.04 gram," read the report. Fast forward to November 2018 and dried marijuana sales were only 41% of the total spend. Instead customers chose concentrates, which became 32.2% of sales and the average retail price per gram was $5.80.
While the report mostly discusses the marijuana market both medicinally and for adult use, hemp is forecast to have more of an impact due to the legalization within the 2018 Farm Bill.
The report read that "The historic uses of the cannabis sativa plant are many, not just in medicine and recreation, but as a raw material in markets ranging from food, paper and textiles to packaging and fuel. Those are sectors of the $80-trillion world economy that dwarf the recreational and medical segments of the legal cannabis industry, and always will. Applications in those areas will take decades to develop now that cultivating hemp is legal in the US-as well as in many other countries where it already was.