This article is part of a series of historical perspectives about the legal cannabis industry.
Making predictions about new markets in the cannabis industry is always a risky proposition. But now that the Midwest and East Coast markets are maturing and markets in the South and Southwest are coming into clearer focus, analysts and entrepreneurs are making more educated guesses about how these new markets will develop over the next few years.
Companies of all shapes and sizes eagerly anticipated the expansion of the adult-use markets on the East Coast for many years, and there is good reason to believe they will be in full bloom soon.
“New York, Missouri, New Jersey, and Maryland are set to experience significant market growth, with New York and New Jersey each projected to be $2.5-billion markets by 2027,” said Roy Bingham, co-founder and chief executive officer at BDSA, a market research and analytics firm. The company recently reported its forecasts for 2023 through 2027.
Other key takeaways from BDSA’s analysis include:
- Midwest and Northeast markets are driving adult-use sales growth, and BDSA forecasts a compound annual growth rate of nearly 11 percent between 2022 and 2027, resulting in a $43-billion legal United States market by 2027.
- Michigan is one of the hottest markets; adult-use sales there exceeded expectations in 2023. Despite declining prices, Michigan’s total sales are expected to grow 27 percent by the end of 2023 and top $3.8 billion in 2027.
- In every state with both medical and adult use, consumers are retiring their medical cards in favor of adult-use products. Therefore, adult-use sales are expected to account for $35 billion of the $43 billion in sales by 2027.
- Cross-border buying has been strengthening markets in the Midwest and on the East Coast, where consumers are more than happy to drive to adult-use stores in neighboring states.
While East Coast states might dominate the headlines in 2024, a number of other states are experiencing steady growth after the passage of adult-use legislation. “New Jersey and Montana both saw triple-digit growth in 2022, and New Mexico saw double-digit growth following the launch of adult-use sales last year,” said Brendan Mitchel-Chesebro, an analyst at BDSA. “The adult-use markets that are in their second and third years, like Arizona, Michigan, and Illinois, all saw significant growth in 2022, as well.”
Missouri and Maryland also enjoyed strong adult-use launches, he noted, in part because the consumer base in Missouri had been primed for several years by shopping in nearby Illinois retail stores. “Illinois published how much of the legal sales in the state is from in-state patients or recreational buyers and how much is from out-of-state buyers,” Mitchel-Chesebro said. “The same month Missouri launched, they saw a huge dip in those out-of-state sales.”
As more Midwest and East Coast states approve adult-use retail, neighboring states—Michigan, Illinois, Maryland, etc.—likely will experience a significant decline in sales. A similar situation should play out in states like New Mexico (which has a robust and growing market) if Texas ever legalizes adult-use sales.
While market growth in nearly every region of the United States is encouraging news, one of the most prevalent trends in nearly every state over the past few years is price compression. This is particularly pronounced on the West Coast, where a variety of factors—supply glut, illicit grows and stores, heavy taxes, etc.—have contributed to a years-long slump that is showing no sign of turning around soon.
California, Colorado, Nevada, and Oregon experienced overall spending declines in 2022, and sales are down a combined 13 percent across those five states. BDSA forecasts a further 10-percent decrease in 2023. “It’s impacting growth the most in mature markets like Colorado, California, Oregon, and Nevada, even though they’re still seeing a big volume of sales,” said Mitchel-Chesebro. “That, on top of illicit competition, has made some of those markets stagnate or even see small declines.”
While the West Coast industry continues to struggle, the East Coast is starting to take shape as the most promising opportunity for companies that understand how to appeal to new cannabis consumers and those who have been weaned in the medical market and are ready for a full-blown retail experience. BDSA anticipates both Florida and Pennsylvania will launch adult-use sales in 2025, and those states will be major players on the East Coast going forward.
BDSA reported the top five markets in terms of sales in 2023 are California, Michigan, Florida, Illinois, and Massachusetts, in that order. By 2027, the firm predicts there will be a shakeup in that list, with California still leading the way. Florida, Michigan, New York, and New Jersey will round out the top five, with Illinois and Massachusetts following closely behind.
