This article is part of a series of historical perspectives about the legal cannabis industry.
It’s been said cannabis years are like dog years, and reflecting on how far the industry has come in the past ten years drives home how true that is. In 2015, the industry was still in its infancy. While the industry today probably can be described as being in its teenage years, that’s a long way from where we were not long ago.
Ten years ago, the first states were just implementing adult-use laws, and states were grappling with basic issues like how to regulate packaging and standardized dosages. The vast majority of markets were medical-only, with relatively low patient counts limited to those with qualifying medical conditions. And east of the Mississippi, only a handful of states even had these kinds of medical laws.
The term multistate operator didn’t exist in 2015, as the first companies were just beginning to bring their operations across state lines. Today’s industry leaders like Green Thumb Industries, Curaleaf, Cresco, and Trulieve were operating in medical-only states like Illinois, Massachusetts, and Florida and applying for licenses in new East Coast medical markets like New York, Maryland, and Pennsylvania. States across the country were watching as Colorado and Washington took a courageous leap to implement the first adult-use markets and become the blueprint for how to transition from medical to recreational. Fast-forward ten years, and there are barely any medical-only states left, with holdouts like Florida and Oklahoma expected to make the transition to adult use in the next couple years.
Ten years ago, today’s industry behemoths were just beginning to consider becoming publicly listed on exchanges like the Canadian Securities Exchange. If you were a member of the public and wanted to buy shares in a public cannabis company, you had few to no options. Today, there are dozens of publicly traded companies operating in the United States, although they are still traded on Canadian exchanges. And in just a short amount of time, the public markets already have experienced two booms and two busts, the second of which still affects the industry today.
Even the valuation metrics for these companies have changed. Originally, companies were valued based on the states in which they held licenses and how many flags they could point to on a map. Limited-license medical markets like Florida and New York were highly valued on the speculation these companies eventually would maintain their oligopoly status once adult use became legal (something that did not happen in most states). If someone read or watched financial news about cannabis companies during these early days of public listings, they would have thought MedMen was poised to become the most successful cannabis company in the world. Yet when valuations shifted from speculation to performance, many early public darlings found themselves nearly bankrupt and today remain shells of their former selves. Meanwhile, companies that focused more on execution over self-promotion emerged as industry leaders.
As previously mentioned, we’ve seen a marked shift in how states apportion licenses. Back in the mid-2010s, nearly every state limited the number of licenses it would grant, leading to competitive application processes that rewarded companies that could hire the best lawyers and application-writers. But as more states moved to adult use in the late 2010s and early 2020s, they also opened up their programs and lifted the artificial license caps, allowing more small business owners to enter the space without having to compete against national companies with much deeper pockets.
This has led to far more competition in the majority of states, much to the chagrin of multistate operators who built their businesses and investor bases on the promise of limited licenses and protected markets. This opening of the markets has led to major price compression in most states, with wholesale pounds of flower dropping from their traditional highs of $3,500 to $4,000 a pound down to between $750 and $1,500 in mature adult-use markets like Oregon, Washington, Michigan, and Massachusetts.
The price drop has been great for consumers, who can enjoy higher-quality cannabis at much lower prices, but many companies have found it challenging to adjust their operations to the efficiency needed to turn a profit at this price point, causing many smaller businesses to go out of business or sell for pennies on the dollar.
We’ve also seen attempts in recent years to make the industry more diverse, with most new adult-use states prioritizing licenses for social-equity applicants or folks from communities that have been disproportionately impacted by prohibition. Many states, including California, Massachusetts, New York, and Illinois, have done an admirable job getting licenses into the hands of those most deserving. However, arguably none have figured out how to ensure the success of these operators, who face significant challenges accessing the capital they need to open their businesses and compete with better-financed competition.
The culmination of all this industry growth leads back to one thing that hasn’t changed in the past ten years: Despite significant progress at the state level, with more than half of Americans now living in states with legal cannabis, the federal government has yet to enact a single piece of meaningful legislation reforming the country’s cannabis laws. The two biggest hurdles resulting from federal prohibition remain the lack of access to traditional banking and the Internal Revenue Code Section 280E tax provision preventing cannabis businesses from claiming standard business deductions on their taxes, making turning a profit nearly impossible for many. Cautious hope remains that these regulatory hurdles may finally fall to the wayside in 2024 with the passage of new legislation like the Secure and Fair Enforcement Regulation (SAFER) Banking Act and the potential rescheduling of cannabis from Schedule I to Schedule III under the Controlled Substances Act.
On the whole, this industry has come a long way in the past decade. There’s little doubt that when we look back in 2033, we will see an industry that has entered its prime and looks as different from the industry of today as today’s industry looks from the one that existed ten years ago.
