OUR 9TH YEAR OF PROVIDING PROPRIETARY CAPITAL MARKETS INTELLIGENCE ON THE CANNABIS / HEMP / PSYCHEDELIC SECTORS
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Chart of the Week
The Viridian Capital Chart of the Week highlights key investment, valuation and M&A trends taken from that week’s Deal Tracker that we believe are impactful for investors, companies and acquirers.
Week ended 06/13/2025
Viridian Capital Chart of the Week: How Much Sales Will Legal Cannabis Gain From State Hemp Prohibitions
- Viridian’s Chart of the Week on 5/23/25 presented a $19.6B estimate for the size of the hemp intoxicant market.
- Several states, however, have either passed or are close to passing draconian restrictions on hemp products that could severely curtail the hemp business if enforced.
- Many of these attempts to “fix the loophole” are attempts by states to protect their legal cannabis markets from competition.
- The natural question is how much does legal cannabis stand to gain from these restrictive legislations? Surprisingly, we believe that only around $5.75B of the estimated $19.6B hemp revenues will migrate into the legal cannabis market. Even this limited amount will not occur instantaneously. Our estimate assumes that all states eliminate intoxicating hemp products, which exaggerates the scope of pending legislation. There is also a big difference between banning a substance and enforcing those bans. Witness the lack of success of past wars on drugs.
- Our estimate is derived from looking at the nature of the individual state hemp markets:
- Limited Medical markets like Texas are some of the largest hemp markets because consumers have very few choices. That means that hemp customers do not have a viable legal solution if hemp is eliminated. We estimate that only 15% of hemp purchasers will end up in the legal market, and most of that will occur via cross-border purchases. The rest will revert to the illicit market.
- Full Medical states will see a larger conversion from hemp to legal THC, but we believe only around 40% of these sales will convert. Hemp customers are accustomed to paying half to three-quarters of the price of equivalent legal purchases. They will also resist the requirement of obtaining a medical card and shopping at less convenient locations. We note that the combination of the illicit and hemp markets is much larger than the legal THC market. Why? Because there is a large segment of the market that values price and convenience above the perceived safety of testing and regulation.
- Recreational states are expected to see the greatest conversion, which we estimate to be approximately 50%. These states already have the lowest hemp sales per adult and only makeup $4.9B of our estimated $19.6B total hemp market.
- Our conclusions are likely to be controversial. Licensed operators would like to believe that eliminating hemp competition will reignite substantial growth in their markets. Sadly, we do not think this is likely to be the case.
- Still, $5.75 billion in sales gains is not insignificant, representing 15.8% of MJBIZ’s projected total sales for 2025. It’s a nice boost, but not a $19B boost.
