4 Predictions for the U.S. Cannabis Market

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Amid a few troubling forecasts for the industry, 2023 still looks like it will be a healthy year for cannabis sales. Adult use is now legal in twenty-one states, and analysts predict 2022 sales could top $27 billion despite the macroeconomic pains that plagued the industry throughout the past year. However, forecasting the United States cannabis market can be challenging given the variances in state markets. The nature of the overall market is a tale of two cities: mature markets versus new ones.

In new markets, demand usually is greater than the collective supply available, and prices remain elevated and firm relative to prices in mature markets. As such, cannabis operators in these states generate higher revenue and gross profit per unit sold. However, new markets face much more competition from the illicit market, which offers lower prices and sometimes a wider selection for consumers.


Mature markets, or states that legalized adult-use sales before the era of COVID-19 lockdowns and stimulus checks, now are dealing with the hangover of oversupply. Soaring sales numbers and rising prices in 2020 sparked overinvestment and excessive expansion, particularly in terms of production capacity. The majority of operators in these markets heeded the call for higher demand and higher prices, but they now are forced to reassess their business models as consumer spending levels out and wholesale prices hit all-time lows. The volatile market points to a need for more flexible financing options for cannabis companies.

Reforms at the federal level, should they occur this year, will impact both new and mature markets. Many companies and investors are waiting on a boost from federal legalization, but this is unlikely in the current environment. Fortunately, the total market continues to show positive signs despite a trudge toward federal legalization and Congress continuing to delay action on the Secure and Fair Enforcement (SAFE) Act, which would provide safe-harbor protections to financial institutions that choose to serve state-legal cannabis businesses.

From my vantage point, here are the important marketplace trends to look out for in 2023.

Mature markets: backlash from oversupply

Mature markets are navigating several issues caused by oversupply. Transaction volume in the U.S. during 2020 created false signals about demand; consequently, supply ramped up toward the end of the year. In 2021, oversupply began to weigh on prices, triggering the wave of attrition (which some inaccurately have labeled consolidation) we’ve been seeing in the overall industry.  Market participants will continue to drop out until the attrition phase is complete. The process is typical of maturing industries.

There are two strategies to combat oversupply: Retailers can work with brands to incentivize more customers to buy, or they can wait for the supply level to balance itself with demand naturally as more suppliers start to fall out of the picture.

Oversupply has been a prevalent issue in mature markets, and it’s likely some players will choose to close shop after they’ve completed one last harvest. However, we expect consumers who began buying cannabis post-legalization to return to legal dispensaries for future purchases instead of going to the illicit market, meaning legal cannabis should have stable demand in the future. Our analysis shows the quantity of cannabis products purchased in mature markets generally has increased by about 10 percent year over year in states such as California. Therefore, the overall decreasing sales revenues in mature states is more reflective of the decrease in product prices. Given consumer demand is healthy, companies next should target economies of scale to attain sustained profitability, positioning themselves to produce more products efficiently without increasing their overall cost of production. Ultimately, these lower prices are likely to persist, which will make the legal industry more competitive against illicit markets in the long term.

New markets: the sky’s the limit

Markets that legalized adult use after January 2020, such as Arizona, New York, and New Jersey, are expected to experience a maturation cycle similar to the mature markets but likely on an accelerated schedule. Each of these states slowly is defining and diversifying its operational presence within the industry, and seeing how they combat supply gluts will prove interesting—and potentially instructive to markets that follow them. In the more mature Colorado and California markets, it took multiple years for oversupply issues to emerge, and we predict these newer markets will reach the oversupply tipping point much sooner in their evolution.

If they paid attention to the maturation process in the older markets, operators in the new markets know the warning signs of oversupply. The more prepared new markets are—minimizing overinvestment in supply and production capacity—the less severe the inevitable price collapse will be.

Federal legalization remains iffy

The timing and nature of regulatory reform are difficult to predict after November’s election ended with split control of the House and Senate. Nonetheless, a survey by Pew Research Center found almost 90 percent of U.S. adults are in favor of legalization for both medical and adult recreational use. This means the old assumption that all Republicans are anti-cannabis has become outdated as more states legalize.

Adult-use legalization in new states like Missouri and Maryland was a positive, but expected, gain for the industry. Regardless of growing support among most voters, 2022 ended with no meaningful legislation benefiting the industry, halting any excitement that federal legalization would come to fruition anytime soon.

In the current political climate, federal legalization likely will gain enough support and traction to pass at a time closer to next year’s presidential election.

However, we believe the SAFE Banking Act still has a shot at passing before federal legalization occurs. The industry’s current pessimism toward SAFE’s future is overstated. House seats shifting in favor of the Republican party will not be a critical blocker given that Republicans hold a very slim majority and SAFE already has passed multiple times with 100 percent of Democrats and more than 50 percent of Republicans voting yes. The main roadblocks for SAFE remain a combative Senate and an unenthusiastic president. With all things considered, we expect the SAFE Banking Act to arrive as a surprise gift for the industry in late 2023 or early 2024. However, even with the bill’s passage, the industry could take one to two years to see its benefits.

Sales continue to grow

Moving into this year, the biggest positive indicator for legal cannabis is the customer base is expected to continue expanding. The number of consumers is expected to grow 4 percent each year, nearing 71 million by 2030. As additional states move toward legalization, consumer numbers are likely to continue to swell.

Additionally, cannabis is gaining traction as a primary “vice” product, a consumer-product category that consistently outperforms on average during times of macroeconomic downturn. The growing number of consumers and tax revenue opportunities spurred by legal sales will apply more pressure on states that have not already adopted medical or adult-use legalization. As companies work to fix the market’s oversupply issues and more people continue to buy legal cannabis consistently, we predict prices will stabilize and gradually increase over the next few years. The current low retail prices across markets can further cement legal cannabis as the preferred choice of consumers over the illicit market, positioning the industry competitively in the long run.

While near-term issues like lack of regulatory reform and low prices seem daunting, there are still signs of strength coming from the industry. With highly anticipated adult-use retail openings beginning in New York, Connecticut, and Maryland this year, the popularity of legal cannabis will continue its surge across the country.

George-Mancheril-Headshot George Mancheril, CEO of Bespoke Financial, has over 14 years of experience in the financial industry with a specific focus on asset based lending, off balance sheet financing of commercial assets, and structured credit.