Many factors play into market growth in the cannabis industry. Unlike in traditional industries, the factors vary dramatically from state to state due to the idiosyncratic ways in which licensing and regulation are administered.
In mature markets on the West Coast, market stagnation is an ongoing story. Headset recently reported the California market generated total sales of $365 million in March—a 5.3-percent decline from the previous year. Oregon, Washington, and Colorado experienced similar declines. The illicit market is a major contributor to the sales slump across the region. Another primary factor is price compression, which has made turning a profit very difficult for companies of any type or size.
However, in other states where price compression is an issue, markets continue to grow. While California’s average retail prices fell 24 percent between the fourth quarter of 2021 and the fourth quarter of 2023, Michigan saw prices across almost every product category plummet an average of 54 percent, to $5.33 per gram. Yet Michigan’s market is expanding.
“Price compression is not an issue that is seriously impacting the growth of every mature market, but I would definitely say Michigan is an outlier there,” said Brendan Mitchel-Chesebro, a BDSA analyst. “It has had really strong price compression over the past year—and the lowest average retail prices of any of the fifteen markets we track—but they’ve still been able to see growth.”
One of the probable reasons for Michigan’s continued growth: The state’s relatively permissive laws and regulations give it an advantage over more restrictive and limited markets in surrounding states like Indiana and Wisconsin.
“You have a lot of cross-border traffic that is boosting the Michigan market,” Mitchel-Chesebro said. “We think this is a trend that’s going to continue in some states through 2028, particularly if we’re talking about East Coast and Midwest states.”
Amplifying that point, a recent Pew Research study concluded “dispensaries often cluster near the borders of states with less permissive marijuana laws.” As an example, Pew cited the situation along the Texas-New Mexico state line: Sixty-four dispensaries sit on the New Mexico side within twenty miles of nearly 1 million West Texans who have no access to legal cannabis in their own state.
As part of its effort to analyze growth indicators, BDSA also tracks the number of brands and retail licenses in each state. In Michigan, the number of brands grew by 50 percent between the fourth quarter of 2021 and the fourth quarter of 2023; California’s brand numbers suffered a 20-percent decline over the same period. As for retail licenses, Mitchel-Chesebro said Missouri has been one of the most successful new markets, partially because new operators were able to secure a good number of retail licenses leading up to adult-use sales. When new stores opened, the average retail prices were comparable to much more mature markets, which made products affordable right from the start.
“At some point in time, [Missouri dispensaries] actually had lower average retail prices than Illinois, which has had adult use for several years,” Mitchel-Chesebro said. “They’ve had a really diverse number of brands that have been able to pop up, and that has helped keep average retail prices low.”
In Illinois and other state markets with stringent regulatory programs and limited licensing, new brands find entering the market more difficult, contributing to the continuation of relatively high prices compared to those in nearby states like Michigan. At the end of 2023, 232 active dispensary licenses existed in Illinois; 215 licenses were active in Missouri. Illinois’s population is roughly double Missouri’s so, per capita, Missouri consumers have far easier access to retailers than do consumers in Illinois. Hence, competition helps regulate prices.
The disparity in the number of retail licenses issued from state to state is one of the more revealing statistics to watch as the industry matures. According to customer-relationship-management tool Cannabiz Media:
- Four states accounted for 60 percent of the 1,695 new dispensary and retailer licenses issued in 2023. The figure represents a marked decrease from the 2,750 licenses issued in 2022 and 2,602 licenses issued in 2021.
- Oklahoma is home to 347 (20 percent) of the newly issued licenses.
- Michigan, in second place, issued 243 new licenses (14 percent), and New Jersey issued 224 (12 percent).
As he looks at potential growth across the United States, Mitchel-Chesebro sees a slightly more optimistic outlook on the West Coast.
“We project markets like California and Colorado are going to be returning to growth either this year or next, and it’s going to be low single digit growth year to year,” he said. “We are also projecting Pennsylvania and Florida will legalize adult use this year and launch sales next year,” he added. “Those are going to be two of the two of the biggest markets as far as growth into 2028.”
