The beginning of every year presents an opportunity to look ahead. What will 2022 look like for the cannabis industry? After experiencing record-breaking growth during the last few years, even amid a pandemic, sales of cannabis show no signs of slowing down, especially as more states move to legalize it.
We checked in with ForceBrands’ Cannabis Client Strategist Eric Rosen to learn more about what we can expect this year in terms of cannabis sales. As a proven cannabis business leader and prosumer cultivator and sommelier, Eric has more than 15 years of experience in the cannabis industry.
Q: Do you foresee 2022 being another strong business year for cannabis?
A: This year will be another strong year for cannabis business as newer markets emerge and drive growth. Early projections by leading cannabis data provider Headset indicate that the total annual U.S. cannabis market has the potential to reach more than $45 billion by 2025. Despite its current challenges, California is expected to remain the number one U.S. market, estimated to reach more than $7 billion in just three years.
Q: How will hemp and CBD products fare compared to THC products?
A: When we compare hemp and CBD to THC products, it’s important to look at the categories like flower, edibles, vapes, tinctures, etc. Flower will very likely continue to dominate in THC, while edibles/tinctures will be the winning category for hemp/CBD wellness. CBD has been cited by Frontier Data to be one of the fastest-growing product categories, with sales estimated to exceed $1 billion in 2022. Beauty, wellness, and pet products will continue to push demand for CBD.
Another thought to consider as we think about the relationship between CBD and THC is that CBD acts as a mitigating factor for the psychoactivity of THC. Meaning, if THC is the gas, CBD is the brake to slow down the velocity of the psychoactive experience. As cannabis becomes increasingly more mainstream, consumers who wish to enjoy cannabis with a milder experience will embrace cannabis products that have a significantly higher CBD percentage in them in order for them to better control and regulate their ideal cannabis experience.
Q: How substantial of an impact will the U.S. play?
A: The U.S. will have a substantial impact on the cannabis market in 2022, however, it won’t be a banner year without federal legalization. The cannabis industry currently employs more than 300,000 full-time jobs, which is only scratching the surface for an industry that’s not yet fully legalized. A study by New Frontier Data indicates that national legalization in the United States could result in $128.8 billion in tax revenue, and the creation of an estimated 1.6 million new jobs. But in the meantime, even without federal legalization and in a time of economic downturn that we have not seen since the Great Depression, cannabis sales continue to show strength in states where it is legalized.
Q: What state markets will be most responsible for driving American sales? Who looks to be the leaders?
A: The same states that have helped drive cannabis sales for the past few years will continue to be leaders in 2022, but newer players are emerging. Statista projects California’s market size to reach more than $7 billion this year, a wide lead ahead of Washington and Colorado with under $3 billion respectively. Michigan and Illinois are expected to round out the top five largest U.S. markets.
If we look ahead to 2025, states that have become newly legal will begin gaining momentum in sales. Florida is expected to achieve more than $3 billion in sales in 2025, putting it just behind California in numbers. Adult-use licenses will also spawn new business. In New York, adult-use licenses are anticipated to be issued in 2023. Its large 21+ population of 15 million will make the state a leader in the space in the coming years. Similarly, neighboring New Jersey, with its adult-use licenses expected this March, will also become a leader with its 7 million 21+ population.
Q: What states could struggle/experience substantial hurdles this year?
A: While California is indeed the country’s leader by a wide margin, taxes and oversupply are contributing to scenarios where growers are letting harvested cannabis go bad versus selling it at market for a loss. There’s currently a ‘green tea party’ underway as California growers refuse to pay taxes and are protesting the draconian and overbearing tax requirements that make the current model (and the proposed 2022 tax hikes) untenable. This has made its way all the way up to Governor Newsome as growers are pleading for mercy (something that should not be ignored given that the size of the illegal market eclipses the legal market). The size of California’s black market for cannabis was $8.7 billion in 2019, far larger than the legitimate market, according to researcher Jan Conway in Statista. This is a perfect storm for a very rocky road for California’s cannabis industry and is likely to result in a lot of smaller/mid-size players going out of business, coupled with larger players engaging in M&A efforts accordingly.
If we look to New York, while recreational/adult-use cannabis is legal, buyers won’t have anywhere to purchase recreational cannabis until 2023.
In New Jersey, 70 percent of municipalities are engaging in the same problems as New York, which also bolsters traditional market efforts as well as lost tax revenues for those municipalities. Increasingly, municipalities are opting out, which means they won’t get any of the tax benefits, but they’re also silently supporting traditional market cannabis, hoping for it to flourish as well.