The headlines coming out of the cannabis industry in 2022 have made one thing clear: as economic pressures related to the recession continue to manifest and cannabis operators in various states grapple with growing oversupply issues, the competition to make it to the top is fierce. These factors remain in play, and we will likely see the business landscape remain just as competitive in 2023. Increasingly, businesses must refocus on their fundamentals – those who do will be recognized favorably. Another result of this competitive market pressure I expect to see is additional distressed M&A as the industry self-adjusts to what are, at least right now, market realities.

When we released our 2022 Midyear Cannabis Industry report, we noted the growing importance of making data-informed decisions as the cannabis industry continues to mature. This will only become more critical as we move into 2023. For the last decade, cannabis operators and ancillary companies have worked to establish the foundation for an industry that is safe, trackable, and that meets the needs of consumers of all kinds. There's no question that these last couple of years have been watershed years for the cannabis industry in both positive and negative ways. Against this backdrop, competition has only intensified as more and more brands continue to enter the marketplace.

An important side-effect of all this is that the more established the industry becomes, the more visibility we have into market trends, consumer behavior, and more. Companies that choose to take the initiative to focus on producing functional analysis from this growing pool of data – and act on it quickly – will be able to make effective strategic decisions ahead of their competitors. I predict a focus on data-informed strategy will stand out as a crucial edge by the time we inevitably make it through to the other side of this period.

At a conference I attended late summer, there was one undeniable takeaway: fintech valuations were on the brink of crumbling, and would do so quickly. Soon after, we saw valuations being slashed at astonishing percentages, with the Jefferies Group reporting that valuations of publicly listed fintech firms have plunged 70% over the course of the year. When coupled with rising interest rates, these firms are now ripe acquisition targets for institutional players looking to strengthen their own digital services.

While national brands are still few and far between, within individual states we see the most successful brands dominating competitors by a factor of 9 to 1. And yes, you read that correctly. These companies are the ones who are leading the pack in using information on consumer behavior to inform and guide their strategies in the marketplace. In just one example, across six recreational cannabis markets in 2021 (CA, CO, MI, NV, OR, WA), cannabis gummies accounted 70% of all edibles sales, while all other categories saw their market shares decline. Brands who have focused in on trends like these and adjusted their strategies accordingly have no doubt seen effective returns on their investments, while those who neglect to react to changing consumer behaviors likely see stagnate growth.

There is urgency behind getting your brand differentiated quickly, as I also expect the recession to impact consumer cannabis purchase habits. Although general spending trends follow patterns across other vice industries, cannabis consumers still have an illicit market to which they can retreat when their pocketbooks are pinched. Building a strong brand and delivering quality products will further your relationship with these consumers, encouraging them to keep their spend in the legal market.

As part of the “Year of Partnerships,” this partnership mentality will also expand to include vendor relationships. Vendors will need to transcend what has historically been viewed a transactional relationship and fill their end of the partnership. As state-level operators continue to prepare themselves for the challenges of scaling to meet the needs of a future national cannabis market, all aspects of business operations will need to come under intense scrutiny. While expense is always an important factor in selecting a vendor with whom to do business, scaling a company to match the growth of a rapidly growing industry requires a wider range of considerations to prioritize. From ERP software to POS systems, seed-to-sale tracking to data analysis, making decisions that support your strategies in the long-term as well as the short-term will be a major differentiator of which brands emerge on the national stage.

In an industry that is as complex in terms of compliance and regulation as the cannabis industry, no operator can produce all of the various expertise required to succeed as a top brand. As such, appropriate vendors must be chosen based on the value of partnership that they bring not just in the present, but at every stage of a scaling business. The company with the lowest bid may suffice for a small business, but it will not necessarily be sufficient to support a mid-size or, eventually, national brand. The operations of cannabis companies grow exponentially more complex as they move towards a national presence, and finding a new vendor at every level of growth is an unnecessary, resource-draining undertaking.

With the economic climate being what it is, 2023 will likely see a practical shift in focus toward tax revenue and job creation driven by legal cannabis. For any who might doubt this, remember that 2022 saw the introduction of Rep. Nancy Mace's MORE Act, a fully Republican authored and co-sponsored cannabis reform bill which has been described as one of, if not the most, comprehensive cannabis legislation to be introduced. What’s more, COVID proved the strength cannabis bring to a state's economy. The coming year will further reinforce that cannabis reform is no longer just a Democratic issue.

The past few years have seen significant movement towards the creation of legal cannabis markets within the southern states, with Mississippi and Alabama among the most recent to push forward with cannabis legislation. Perhaps just as significant, we have seen a recent surge in support for federal legislation among members of Congress hailing from the southern states - and even a comprehensive cannabis reform bill authored by a southern Republican (See: Rep. Nancy Mace's MORE Act).

When it comes to cannabis markets, discourse tends to be centered around progress made in North America as well as, increasingly, Europe - with Germany in particular generating a lot of recent buzzz. However, though there has been much news surrounding movement on a legal cannabis market in Germany, there remains significant groundwork to be laid, meaning it is more likely to see legislation passed there in 2024. Latin America, on the other hand, has seen its own cannabis industry boom over the last decade, with notable results. As such, emerging Latin American markets are closer to fruition, and growth in those existing markets proves significant.

As of 2022, cannabis use is legal in some form in at least a dozen countries across Central and South America. Uruguay, in fact, became the first country in the world to legalize cannabis use at the national level in 2013, and Brazil's cannabis market alone was estimated to be valued at $2.3 billion in 2029. Further, analysts at New Frontier Data have said they expect Latin American legal cannabis sales to grow from $7.3 billion in 2020 to $44.8 billion by 2025.