Predictions are easy. They are opinions and don’t necessarily need to be correct; in the same way New Year’s resolutions are shrugged off by March. Instead, what are the themes we all can come back to every day?
Consider this an open letter to all my cannabis industry colleagues. These are some of the many places where my attention will be focused in 2023.
More of the Same
Some major themes we saw in 2022 will continue:
The relentless march towards legalization. Cannabis is normalizing. Every mainstream reference and recognition chips away at the opposition to federal legalization. Political prognostications aside, the normalization of cannabis is an opportunity for many operators, brands, and markets to expand in 2023
The legal market is still pulling from the traditional (illicit) market. According to New Frontier Data, the traditional market is more than double the size of the legal market. While the traditional market may be the competition, it does not have to be the enemy. Let’s be open to the idea that we have something to learn from each other. In 2023 there will be more opportunities for traditional operators to enter legal markets. And, depending on regulatory and tax environments, the price compression of wholesale flower will accelerate the shift of operators and consumers to the legal market.
Medical cannabis is underappreciated and underestimated. A recent study by NORML reports that more than 4,300 studies of cannabis and cannabinoids were published in 2022. The results of these studies are helpful tools for our industry. Both existing and new medical markets will continue to provide opportunities for products, data, and services to generate value in 2023 and beyond.
The conversion to adult-use is an inflection point; and it isn’t easy. New York, New Jersey, and Connecticut are live. While there are many opinions around how these were rolled out, there is no denying the sheer size and density of these markets.
Missouri will jump from medical to adult-use a mere three months after passing their ballot initiative. Strong participation in the medical market and a low consumer tax rate makes this a state to watch in 2023.
Minnesota legalized edibles and beverages with 5 mg of THC or less during 2022. Delivery and on-premise THC beverages are now common in the state of 5.7 million people. An election sweep this past November means that the governorship, the Senate, and the House are all led by democrats. A draft of adult-use cannabis legislation has already been revealed. It is explicitly stated as a priority this legislative session.
The return of the single-state operator. Many new markets include licensing preference to locally owned applicants. In addition, many social equity programs will provide opportunities where they would not otherwise exist. The slow pace of merger and acquisition (M&A) activity has provided space for these local operators focus solely on execution and scaling.
Tough Times Create Exceptional Organizations
The time has come for all industry participants to execute daily—with resolve and grit; to be highly efficient and value oriented. To understand where this grit will be needed most, consider some of the ways a recession and inflation will show up in the cannabis industry this year:
No surprises. Price compression of the wholesale market is here. Federal movement (Secure and Fair Enforcement (SAFE) Banking, federal legalization and/or descheduling, etc.) is not gaining traction. Neither should be a surprise or central to a business plan. Lower wholesale prices can translate to lower retail pricing. This can pull more consumers from the traditional market to the legal market. Learning how to navigate unique state and local regulations can become a competitive advantage.
Trust, but verify. Testing and labeling needs to be more accurate and trustworthy. The testing needs to be legitimate, the labels accurate, and the brand cannot speak to children. Winning and maintaining the trust of the consumer is the path to stable revenues in 2023 and beyond.
Do more with less. Capital will still be tight in 2023. Expect to see debt financing continue to play a bigger role. M&A activity will be light until multistate operator (MSO) stock prices rebound. Even then, spending will be scrutinized—including acquisitions.
Build Bridges—Don’t Burn Them
Cannabis is not a zero-sum game. There are many ways to interact with people and organizations. Not every pitch deck gets funded, not every wholesale deal gets made, and market share can shift. Look for opportunities to support each other through sharing ideas and information, and making meaningful connections. It takes respect and kindness to build an inclusive industry and achieve success. Root for the home team, we’re all on it.
Colin Kelley is an Operating Partner for Merida Capital Holdings and Cannabis Business Times and Cannabis Conference advisory board member.