Marijuana Industry Sales Slow Down After Pandemic Surge

Marijuana Industry Sales Slow Down After Pandemic Surge
  • In some of the more mature legal marijuana markets in the United States, sales have declined after rising at the start of the pandemic.
  • Investment money is also drying up, making it difficult for small businesses and startups to succeed in a crowded market.
  • The industry is waiting for federal regulations that could help on a national scale.

A customer lights cigarettes at Lowell Farm, America's first farm-to-table legal cannabis cafe, and smokes weed in West Hollywood, California on October 1, 2019. © CNBC A customer lights up a joint at Lowell Farms, America's first legal cannabis cafe to offer farm-to-table food and cannabis consumption, in West Hollywood, California on October 1, 2019.

After enjoying sales growth during the pandemic, the US marijuana industry is showing signs of slowing down as it faces economic and regulatory challenges and people choose to spend their money elsewhere.

In states with established marijuana markets, such as Oregon and Washington, sales at retail stores and dispensaries were lower than last year, according to a report by cannabis data firm Headset. In Colorado, one of the most established markets in the state, June sales were down 11.4% from a year earlier.

"What we saw in 2020 was a huge spike in sales related to the epidemic because people stayed home, got stimulus money from the government, and couldn't do much," said Chris Wash, CEO of Marijuana Business Daily.

Between March 2020 and March 2021, average year-over-year sales in Colorado increased 25.8 percent, according to Headset. But as the epidemic began to wane last summer, the report found, the frequency of marijuana purchases and the amount of money people spent began to decline.

For example, in July, people spent an average of $55.21 per visit at the average store in Colorado. That's about $4 less than the July 2021 average of $59.73, according to Headset Research.

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"Retailers discount in times of high inflation because they are trying to get products off the shelves," Wash said, adding that businesses also face stiff competition from "thriving" illegal duty-free markets.

"We operate in a very challenging and competitive landscape, where our biggest competitor is the black market," said Troy Dacher, CEO of The Parent Company, a California cannabis company.

Overall industry-wide retail sales continue to grow and are expected to increase as major new markets come online, including New York, Maryland and Missouri.

According to an analysis by Marijuana Business Daily, combined US medical and recreational marijuana sales could reach $33 billion by the end of the year, up from $27 billion last year. Sales are expected to reach $52.6 billion by 2026.

"The long-term horizon is very bright," Wash said. "Going through this industry."

But for now, investment money is drying up as the market becomes more active.

According to Viridian Capital Advisors, a New York-based cannabis advisory firm, total US cannabis capitalization fell 62.6% from a year earlier and equity funding was 96.3%, to $2.1bn. last year at $78. . million today.

Part of the problem, experts say, is that investors are tired of waiting for federal regulations.

The lack of federal regulation means that marijuana businesses in states where recreational sales are legal still lack access to traditional banking services or institutional capital. A congressional bill called the Safe and Fair Bank Foreclosure Act, or AMN, would have lifted the restrictions, but it has yet to pass the Senate despite passing the House multiple times.

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“A lot of investors come in with the idea that there will be some move at the federal level to reschedule drugs or pass some kind of banking law,” said Matt Hawkins, founder of Entourage Effect Capital, a cannabis investment firm.

Hawkins said he and other investors are becoming more selective in the companies they fund, with a preference for those that already have significant market share. That could hurt smaller players hoping to catch up, he said.

"The industry is in a state of internal consolidation, with new licensees struggling to raise capital and expand efficiently," said Robert Beasley, chief executive of Fluent, which operates medical clinics in Florida, Pennsylvania and Texas.

Despite the economic hurdles, however, Beasley said he hopes "some small steps of regulatory relief" could help get the industry back on track.

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