Colorado Not Alone in Cannabis Woes

After recreational sales started in 2014, Colorado's commercial cannabis industry didn't experience a dry spell until 2021, when both wholesale prices and dispensary sales started dropping. That dry spell is bordering on full-on drought as we near the end of 2022, however, with the average price per pound of marijuana flower falling nearly 62 percent since last year.

As chief knowledge officer at New Frontier Data, a commercial cannabis data firm, Amanda Reiman forgets more about United States cannabis markets in a day than we'll learn in a lifetime. According to Reiman, cannabis businesses across the country are going through a rough spot, for reasons similar to this state's downturn. We reached out to her to learn more about how Colorado's issues stack up with those of the rest of the nation, and what Denver's cannabis space should expect from federal legalization if it ever comes.

Westword: Cannabis sales were booming in 2020 and the first half of 2022 in Colorado, but trailed off significantly since. Has this been the case in other states?

Amanda Reiman: California saw volatile sales in the middle of the year, from roughly 4/20 until the middle of June, but sales volumes are slightly higher now than they were in January. Arizona saw a similar pattern but with less dramatic peaks and valleys. Michigan is interesting, because different product categories saw different periods of growth and contraction. For example, during the month of July, cartridge sales fell and flower sales increased, while other states tend to have products that run in parallel.

Did the COVID-19 sales bump make business owners overconfident? What factors have contributed to the sales drop?

The COVID sales bump was not sustainable for a few reasons: First, it relied on people having the money to purchase cannabis. This largely came from the money that wasn’t being spent on travel, restaurants, gas, etc. Because the sales volumes do not show significant decreases for 2022, reductions in sales revenue would be due to consumers buying cheaper products, not fewer, as a result of increased competition for their disposable income. Secondly, people aren’t home as much. Our data show that home is where people most commonly consume cannabis. When they work outside the home or go out to eat, they are less likely to consume as much.

Colorado's cannabis industry is facing an economic downturn for the first time. Has this affected the thirst for marijuana business acquisitions? Are cannabis investors looking elsewhere across the country?

While I don’t have the most recent [merger and acquisition] data, the United States remains the largest cannabis market. However, there is a point where the ceiling of federal prohibition and the extraordinary costs of compliance and operations might lead investors for certain sectors, like cultivation, to look at opportunities outside of the U.S., especially given the import/export allowances being adopted by many European and South and Central American countries for medical cannabis.

How much does a down market hurt the effort toward social equity in the cannabis industry?

While social equity should be a priority regardless of market performance, if cannabis businesses see internal equity programs as “nice to have” and not “must have,” they are vulnerable to cuts during belt-tightening periods. Until we see strong evidence that engaging in equity on the business side results in more customer acquisition, it will be tough to make the case to businesses trying to keep their heads above water. Additionally, when state and local equity programs are funded by tax revenue from cannabis sales, less revenue means less money for these programs.

Would federal banking protections shift the market at all?

Yes. It would embolden investors and make small businesses eligible for small-business loans from the banks. However, there are still key aspects of federal prohibition, like restrictions on interstate commerce and exportation, that will continue to tie the hands of the industry.

If or when cannabis is federally legal, how will that affect established cannabis markets like Colorado's?

Interstate commerce and the removal of restrictions on use by federal employees, active military and others will definitely impact the market. Certain sectors of the market, like cultivation, may move out of state where cannabis can be grown most cheaply at scale. Other sectors, like retail, may thrive due to wider acceptance and availability.

Denver has over 200 dispensaries alone. How long would that number remain if federal legalization occurred? Would we see a noticeable contraction, or more mergers and acquisitions in cities that could be oversaturated?

This is very hard to predict. However, it is possible that once federal legalization occurs, behemoth companies will feel comfortable getting into the game, and we could see large levels of consolidation and/or acquisition. That might result in the craft beer model, where there are thousands of brands, but many are under the umbrella of some larger corporation. Or it might result in the mass branding of one dispensary, like Starbucks. A lot depends on the consumer and if they care about variety and small business, or if they want standardization and consistency across the globe when it comes to their cannabis products.