The US cannabis industry has seen a dramatic surge in popularity and acceptance over the past few years. In 2012, Washington and Colorado became the first two states to legalize recreational use of cannabis, marking the beginning of a nationwide shift toward cannabis acceptance. Since then, more states have joined in on the movement with an increasing number legalizing either medical or recreational use of cannabis (or both).
As of February 2023, an estimated total of over 155 million Americans live in a state with some degree of cannabis legalization. Although, the industry in the US still needs to address certain issues in order to fully realize its potential.
Current challenges of US Cannabis Industry in 2023
Despite cannabis being decriminalized in 37 states, 3 territories (and the District of Columbia) across the country and many more allowing it for medical use, there are many challenges facing the cannabis industry today.
Most glaringly the fact that it is still illegal at the federal level. This creates a great deal of uncertainty for businesses operating in the cannabis industry, as they must navigate a complex and often conflicting legal landscape.
Another challenge facing the industry is the lack of access to traditional banking services, such as loans and credit lines. Because cannabis is illegal at the federal level, many banks are hesitant to provide financial services to related businesses. This lack of funding options stifles industry growth and limits the amount of competition in a given city.
Even more, there is still a significant stigma attached to cannabis use, making it difficult for businesses in the industry to gain acceptance and build a customer base. This stigma also makes it difficult for researchers to study the potential benefits of cannabis, which could help to further legitimize the industry. With so much reluctance around the topic, the government is hesitant to offer funding for these proper, long-term studies.
Promising growth opportunities for the US cannabis industry
Despite these strong limitations, the future of the industry in the U. S. is still promising. More states are likely to continue to legalize both medical and recreational marijuana use and many jurisdictions are moving towards decriminalizing minor cannabis offenses. This will open up more opportunities for businesses to operate legally within their respective states.
The industry’s revenue is expected to rise with the legal acceptance of medical and recreational marijuana, providing opportunities for cultivators and investors. In 2021, U.S. cannabis sales reached a high of $24 billion, and it is expected to reach $70 billion in 2026.
In 2020, 16 US states, territories, and the District of Columbia legalized parts of the cannabis industry. This brings the total to 37 jurisdictions that recognize and legalize aspects of recreational or medical cannabis industries. Furthermore, research shows consumer attitudes are playing a role in furthering legalization at the state level.
In 2021, Gallup estimated that 80% of U.S. citizens support legal access to medical marijuana, while 60% back full adult-use legalization.
The competition faced by businesses in each state
As the cannabis industry continues to expand, businesses will need to develop new strategies to stay competitive. This could include diversifying products and services, embracing technological advancements such as digital marketing, leveraging relationships with local and state governments, and investing in research and development. Businesses will also need to focus on providing high-quality customer service and building a strong brand that customers trust.
Cannabis businesses must compete with the illegal market and cartels. The drug trade is an incredibly lucrative business and these groups are determined to maintain their control over the supply and distribution of cannabis. This means that businesses in the industry will have to compete with them for customers and resources.
To do this, they must focus on providing superior products that offer higher quality than what is offered on the black market. They must also invest in building relationships with local communities, educating customers on the benefits of using legal cannabis, and providing reliable customer service.
There are some states, like Oregon, where legal growers can’t compete with illegal operations that can undercut prices by as much as 20% due to not paying any fees or taxes.
Regulation of the Industry
Regulation of the industry is key to ensuring that businesses in the cannabis industry are able to compete with illegal markets and cartels. The regulation provides safeguards for consumers, protects businesses from unfair competition, and ensures that all parties involved in the sale of cannabis comply with state and federal laws. In states where the sale of cannabis is legal, regulations are in place to ensure that cannabis businesses do not operate outside the scope of the law. This includes regulations for licensing, product labeling, taxes, testing and safety standards, advertising restrictions, and more.
In states where cannabis is legal, producers must meet certain safety standards such as testing for contaminants, pesticide residues, and other potential hazards. This ensures that consumers are getting a safe product. Regulations provide a level playing field for businesses, allowing them to focus on providing quality products and services rather than trying to undercut their competitors.
As states move towards legalizing cannabis, they must ensure that businesses are compliant with all applicable laws and regulations. This includes ensuring that businesses are paying taxes, collecting appropriate fees, and tracking inventory to prevent diversion into the illegal market.
One of the most effective ways to regulate the industry is through METRC (the Marijuana Enforcement Tracking Reporting Compliance system). This system tracks all cannabis and hemp plants from seed to sale, ensuring that businesses are compliant with state regulations.
The system is still growing and it’s being used in Alaska, California, Colorado (including industrial hemp), Washington, D.C., Louisiana, Maine, Maryland, Massachusetts, Michigan, Missouri, Montana, Nevada, Ohio, Oklahoma, Oregon, and West Virginia. This system also helps states collect taxes and fees on cannabis sales, which is an invaluable source of revenue for governments.
What the future may hold for the US cannabis industry
The United States is predicted to experience a recession in 2023, leading to struggling economic conditions. Cannabis prices have declined throughout 2022 due to oversupply and illegal market activities, which are likely to remain the same in the following year. Consequently, there may be an increased rate of mergers and acquisitions in the upcoming 12 months. Even if this does play out as expected, smaller and mid-sized cannabis operations will have plenty of opportunities for acquisition.
As economic problems, supply, and pricing continue to be a factor, many license holders may seek to leave the industry. This would result in potential acquisitions that can enable single-state operators (SSOs) to increase their reach and multistate operators (MSOs) to gain entrance into new markets.
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