Major consolidation

The cannabis industry doesn’t seem as recession-proof as it did before the COVID-19 pandemic lockdowns.

Companies in states with established recreational markets, such as Colorado and Washington, are feeling the pinch of declining prices.

Adult-use sales have largely plateaued in other markets, including relatively young states like Michigan and Massachusetts.

As a result, businesses that either directly or indirectly interact with plants are reducing their workforces.

Many businesses will fail this year despite cost-cutting efforts, licenses will be acquired by larger, more corporate-style businesses, and only the most cost-efficient players will remain in business.

Mergers and acquisitions

The merger and acquisition market slowed significantly in 2022, and this trend is expected to continue as news emerges that capital availability across the United States is virtually nonexistent.

Once upon a time, multi-million dollar business transactions were regularly covered by MJBizDaily. Yet instances of this are becoming increasingly rare.

We covered several deals in 2022 with a total value of less than $25 million.

The value of last year’s all-stock or partial-stock deals has dropped significantly along with the stock market.

Delta-8 THC remains

Within the last year, nearly every state with a legal marijuana market has implemented some sort of regulation regarding delta-8 THC.

Delta-8 products proliferated almost unchecked in states with minimal or no legal marijuana markets, and even in states with strong laws, posing a significant threat to the licensed industry.

So long as the original plant that CBD was extracted from met the legal definition of hemp, cannabinoids made from CBD extract are legal under the 2018 Farm Bill, which legalized hemp production and hemp “derivatives” and “extracts” nationwide.

Accordingly, the process of removing CBD from hemp flowers and then further processing the CBD in a factory setting does not constitute a violation of the United States Controlled Substances Act.

A major problem for the cannabis industry is the continuation of the delta-8 market as it stands unless the law is changed, which is highly unlikely.

THC potency obsession

The industry’s fixation on THC concentration is bound to boil over at some point.

The potency issue, which had been simmering for some time, finally came to a head in 2022, when laboratories were sued for allegedly inflating THC numbers and state regulators from Florida to Nevada began fining and suspending labs for violations.

Industry watchers are hopeful that this will encourage consumers to learn more about the cannabis plant’s many other therapeutic properties and reduce their reliance on lab testing.

The industry’s attention might then turn to factors other than cannabinoid concentration as a result.

Calls for moratoriums grow louder

Growers in established markets are appealing to state governments for assistance as they face price declines and oversaturation as more cultivation capacity enters the industry.

Businesses in states like Colorado and Michigan have asked regulators to halt license issuance in the interim.

The long-term effects of such arbitrary market controls on corporate prosperity are yet to be determined.

Even when similar measures were taken in Oregon a few years ago, the state’s overproduced market still wasn’t able to balance out.

Product segmentation

While the legal cannabis industry as a whole is expected to expand, the flower industry is expected to lose ground to more sophisticated products like concentrates, edibles, and vape pens.

Regular consumers continue to smoke flowers at similar rates, but they have also begun incorporating other form factors into their routines.

Live resin will remain a preferred extract among consumers, both on its own and in other forms such as pre-rolls, cartridges, and edibles.

The distillate, while not going extinct anytime soon, will lose favor as more people opt for live resin.

According to Brightfield Group, a cannabis analytics company headquartered in Chicago, new consumers account for only 6% of the market and don’t spend that much money.

Instead, regular users account for the bulk of sales: 47% partake in cannabis use multiple times per day, 17% use it once per day, and 10% use it five or more times per week.

New York will struggle

Delivery of cannabis to a New York City apartment has long been thought to be simpler than pizza delivery.

The licensed market already faces challenges in the form of illegal operations, such as pop-up cannabis shops, unlicensed dispensaries, and vans selling marijuana out of their backdoors.

The state is trying to get creative about how to tell legal cannabis businesses apart from the illegal ones, but simply sticking a QR code on the front window probably won’t cut it.

Regulators must maintain low taxes and maintain business-friendly environments to entice consumers away from the black market.

Canada’s business

Large Canadian firms have been using Wall Street financing to sell cannabis at a loss in recent years, racking up billions in losses while undercutting rivals.

This pattern could reverse if the supply of cheap capital on Wall Street dries up and big businesses are left to sink or swim on their own.

Canada has grown too much cannabis for the market to absorb. That won’t alter in 2023, but supplies may reach a peak and begin to decline shortly after.

Certain provinces have witnessed a closure trend in the retail sector, especially in oversaturated urban areas.

Despite ongoing store closures and retail consolidation, new stores will keep popping up in unexpected places. You can bank on a net gain at the mall.

By Michael Caine

Meet Michael Caine, a versatile author hailing from the tech-savvy landscapes of the USA. With a passion for innovation, he navigates the digital realm with his insightful perspectives on technology, gaming, and niche topics. Michael's writing transcends boundaries, seamlessly blending in-depth tech analysis with a keen understanding of the gaming world. His engaging content resonates with readers seeking a blend of cutting-edge insights and a touch of Americana. Explore the digital frontier through Michael Caine's lens as he unveils the latest trends and thought-provoking narratives in the ever-evolving world of technology and beyond.

Leave a Reply

Your email address will not be published. Required fields are marked *