OUR 9TH YEAR OF PROVIDING PROPRIETARY CAPITAL MARKETS INTELLIGENCE ON THE CANNABIS / HEMP / PSYCHEDELIC SECTORS
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Chart of the Week
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 11/24/2023
Viridian Capital Chart of the Week: New Adult Rec States Are Likely to Drive Significant Cannabis Sales Growth
- 2023 has been a disappointing year for cannabis, and according to consensus estimates, the top ten MSOs will have a 2023 revenue growth of only 1% and an EBITDA decline of 1% compared to 2022.
- Nevertheless, Statista projects U.S. legal cannabis sales growing at a 14.66% CAGR from $33.88B in 2023 to $67.15B in 2028. But where will this growth come from?
- 3rd quarter releases contained one theme that hints at the answer: most growth came from new markets (Maryland).
- The good news is that the most significant potential driver of new cannabis sales does not require any action from Washington, D.C. Very considerable growth can be achieved through the conversion of a few populous states from medical to adult-use cannabis. Further growth might be achieved by “fixing” the two largest adult rec states. (But we are not holding our breath).
- The chart shows four states that are likely to undergo significant growth from legalizing adult recreational use of cannabis. Two of the four states on the left, Ohio and Virginia, have passed adult rec legislation but have not yet turned on the spigot. Ohio’s program is projected to become effective in Q4:24 but is subject to modifications in the state legislature. Virginia legalized adult rec in 2021, and the opening of adult rec dispensaries was scheduled to begin on January 1, 2024; however, a re-enactment clause requiring the Virginia legislature to re-approve the sales provision was not taken up following the Republican takeover of the House of Delegates in 2021.
- The graphs’ bars depict the incremental legal cannabis revenue potential from passing adult rec in each state. We took an estimate of each state’s 2023 population and multiplied it by an assumed spending per capita that we based on the $170 annual spending levels that Massachusetts has obtained. Our assumption is far below the above $300 levels of Colorado but higher than the approximately $160 levels of Illinois. We subtracted estimated 2023 spending for each state from this projected level to arrive at the incremental sales potential. The percentage figures on top of each bar show the percentage increase that each state would represent based on 2023 national sales levels.
- The states on the right (California and New York) have passed adult rec legislation, but they can be considered “failed experiments.” Although they got there by quite different routes, both share two commonalities: they are both drastically understored, and both have a well-entrenched illicit cannabis market that may prove impossible to dislodge. Neither have close to the sales or profitability that they are capable of. Still, hope springs eternal, and the graph shows the impact achievable through more business-friendly regulation.
- The impact that each of these states could have on overall cannabis sales growth is quite significant, and we are highly encouraged that vibrant cannabis growth needn’t depend on federal action. We now believe the passage of adult rec in these states is second only to rescheduling in importance.
