Amid the green wave expected in the northeast including New Jersey, Connecticut, New York and Virginia, Pablo Zuanic, analyst at Cantor Fitzgerald reviewed economic trends in four states that have legalized the recreational use of cannabis: Illinois, Michigan, Massachusetts and Arizona.

Except for Arizona, which had a well-developed medical market, Zuanic estimates sales of adult-use cannabis 2-3 years into the respective programs will be anywhere from ~5x to 7x the level of medical sales (before recreational legalization).

According to the analyst, that “could imply significant upside for operators in New Jersey and other soon-to-be rec states.” He warned that the proliferation of stores in some states over time may lead to weaker economics both in terms of gross margins and (especially) in terms of sales per store.

At the same time, Zuanic noted that limited cultivation licenses and caps will also impact prices and economics. while “limited cultivation licenses combined with store proliferation will benefit the more established operators.”

The analyst explained that sales are driven by "the three As, access (stores; retail density), assortment (formats, range, potency, quality), and affordability (prices)."

State Markets Breakdown

Illinois

Although local cannabis markets went through a minor deceleration after a strong second quarter, Zuanic says that it will continue to offer some of the most attractive economics, in terms of sales per store and wholesale prices.

Michigan

Zuanic said this market presented “robust growth trends,” but he said he was uncertain about the economics, “given the lower wholesale prices and the low average revenue per store”.

Massachusetts

Zuanic views the market to have robust growth trends and stable economics. At the same time, the analyst admitted that he wondered about the risk of store proliferation (this may be less of a concern for those more focused on wholesaling).

Finally, Zuanic referred to Arizona as a market “facing somewhat of a lull after a strong start.” And considered that “this is a state where state ownership may be more valuable than cultivation.”

Although there is no official sales data for AZ, BDS Analytics estimates sales of recreational cannabis at an averaged of $55 million per month in July/August. That would be equivalent to an average of $91 in cannabis sales, per capita (below IL’s $117).

The analyst argues that Arizona’s medical program was very developed when the recreational program came along. However, medical sales continue to trend down.