Saturation Of The US Cannabis Market: A Survey Of Where We're At And Where We're Headed

This article by Lana Braslavskaia was originally published on AskGrowers and appears here with permission.
There are 16 states with legal recreational cannabis — a number that seems to grow nearly every year. An additional 36 states allow cannabis use for medical purposes, making the overall legal options significant and expansive.

Things have certainly come a long way since 2012, and one can expect a similar trajectory for cannabis in the decade ahead. The illicit drug market certainly still has a very firm grasp on the majority of cannabis sales, but with each state that goes green, the cannabis “black market’s” piece of the pie shrinks.

Legalization has led and will continue to lead to an opportunity for broad market saturation by certain brands. In this article, we examine the possible future of cannabis growth in the United States.

THC Market Share

The THC market is currently experiencing an awkward growing phase. On the one hand, more and more states open themselves up to legal cannabis with each election cycle. In theory, this should mean that the use will also increase exponentially with each state that goes green, as more and more adults make the decision to experiment with the substance in a safe, legal capacity.

States with legal cannabis have shown little to no increase in first-time THC users. In fact, early surveys have suggested a negative association between legalization and underage cannabis use — with the assumption here being that broader cultural acceptance has cost THC its rebellious edge.

On the other hand, measuring cannabis use does have its complications. Even with acceptance growing, many may be reluctant to confess their relationship with THC for fear of social or professional consequences. We do know that, regardless of how many people try cannabis strictly because it is legal, it does have undeniable popularity in “green states.”

The legal cannabis industry is currently worth $17.5 billion and counting. Hundreds of thousands of jobs have been created in its wake. From a business perspective, the opportunities provided by legal THC are significant and undeniable.

Illegal cannabis may still possess the majority of the market share (in at least 34 states, it is essentially the only game in town). However, it can reasonably be assumed that legalization will continue to cut back against black market sales well into the future.

In terms of market competition, it’s less a question of “legal vs. illegal” cannabis — although this topic does still invite exploration — and more one of big brands versus more minor operations. Competition is already stiff in the legal market — especially in states that do not limit legal licensing.

As the market expands the “franchise effect” does seem like an inevitability. While there is no “Walmart of cannabis” yet, that may change as it becomes easier and easier for legal operations to the franchise.

Nevertheless, the world of cannabis does seem to fit the small business world well. While one no longer needs to have a rebellious streak to experiment with cannabis products, the counter-culture mentality is still baked into the equation and not likely to vacate the premises entirely any time soon.

The average cannabis customer may well be predisposed to favoring smaller brands with craft products and a compelling human story. Much the same way that craft beer and large breweries have managed to coexist and thrive, the same may well be true of cannabis.

To that end, small cannabis operations with a high-quality product and enough marketing savvy to tell a compelling story may well find success going forward.

Black Market Hurdles

Currently, the THC black market remains a hurdle for large-scale success. Indeed, legalization has been associated with an increase in illicit THC sales at a rate of over 600% in some parts of the country. The reasons for this are several-fold. Making cannabis legal in one state but being prohibited in its neighbors creates a natural opportunity for smuggling operations.

For many, price is another concern. Legal cannabis often costs significantly more because of sales tax. As more and more states accept THC, legal cannabis will likely largely overtake the illicit market organically. In the meantime, though, black market sales will remain a hurdle.

CBD Market

On the other end of the cannabis product spectrum, we have CBD. CBD is currently much more pervasive than THC, largely because it is legal at the federal level. The legality and broad popularization of CBD has led to saturation in the marketplace. There are over 50 popular brands and counting on the market.

An increase in CBD use and availability has led to a decrease in price — a concerning trend for CBD manufacturers and retailers.

CBD operators are finding success in an increasingly competitive market by broadening the contents of their products to include other valuable cannabinoids, such as cannabigerol (CBG) and cannabidivarin (CBDV).

As with all things retail, future success in the world of CBD sales may well depend on the story vendors are able to tell about their products. Brands that can distinguish their offerings from the competition may well be able to pull ahead of the pack.

Conclusion

It may well be that the CBD market is giving the rest of the legal cannabis world a glimpse into the future. Will the THC market become overcrowded and complicated by broader legalization?

While questions of this kind may weigh heavily on the minds of THC operators, it is important to keep in mind that legal cannabis of any kind is still in its infancy. The market can and probably will change significantly based both on future legislation and public interest. Big brands will rise, smaller brands will carve their niche, and the wheels of commerce will keep turning.

Posted In: CannabisMarketsCannabis Contributorscannabis marketcontributors
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