Lessons From 5 Years Of The World's First Legal Cannabis Market

With the release of its 2019 U.S. Cannabis Report, industry analyst firm New Frontier data takes a closer look at the evolution of the world’s first legal cannabis market over its initial five years of operation. The report highlights the growth, success and lingering questions that emerged from the nascent cannabis market and how the lessons learned in Colorado might apply to the states that followed its model.

A Mile Ahead, And Above

Although Washington state actually legalized recreational cannabis a short four days before the mile-high state, the first-ever retail cannabis sale occurred in Colorado on January 1, 2014. But, even before then,  the medical sale of cannabis was already allowed in a handful of U.S. states including Colorado, which passed legislation in late-2000.

However, it wasn’t until adult-use sales were legalized that cannabis was able to flourish in the rocky mountain state. Based on recent usage rates, the number of medical patients represents less than 7% of the total number of cannabis consumers in the state.

Source: U.S. Cannabis Report: 2019 Industry Outlook New Frontier Data

According to the NFD report, total medical and adult-use sales of marijuana hit $6 billion between 2014 and 2018, with roughly half of the revenue generated in the past two years. What’s more, while medical sales account for a sizable portion of those sales, adult-use revenue totaled more than $4 billion.

It Pays To Go Legit

Sustaining almost all of that growth is a thriving recreational market that accounts for 87% of the total addressable market and greatly overshadowing the medical component, as illustrated in the chart below.

This adult-use segment has been the real driver of the cannabis market in Colorado, with the medical portion gradually losing patients as retail availability expanded. However, the report notes that much of the growth in the market can also be attributed to the growing acceptability of cannabis use, with more individuals willing to self-report as cannabis users.

What’s also notable that the market has seemingly plateaued, something the report attributes to a nearly complete transition from the illicit market to the legal market.

Per the report, “New Frontier Data estimates that over 80% of all cannabis demand in the state is now being served by the legal market. As such, further growth from consumers transitioning from the remaining unregulated/illicit market to the state-regulated industry will be incremental in the coming years.”

While this might seem to indicate a saturation of the market, the report stresses that, as the market becomes more sophisticated and a greater number of products and vendors enter the market, new customers will filter in, although at a slower pace of about 3.7% from 2018 to 2025.

Other States See Green

Despite its unique status as the first legal cannabis market, Colorado was quickly eclipsed as the largest legal market shortly after California passed its legalization measure in 2016. All told, 33 states and the District of Columbia currently have some form of legal medical or adult-use market.

New Frontier Data also turned its lens toward this group to project each state’s estimated share of the market by the year 2025. While Colorado is projected to represent 7% of the U.S. market, states with a larger population like Illinois and Florida are set to overtake it, despite Illinois only passing legalization in the past year and Florida still only allowing medical sales at the time of these estimates.

Still, the report credits Colorado’s significant growth and well-regulated market as a model of comparison for the array of other states that have since passed legalization measures. Only time will tell whether Colorado’s approach to legal cannabis will remain the gold standard or if those states that followed in its wake will implement more efficient regulatory frameworks.

New Frontier Data is a content partner of Benzinga