As more states legalize cannabis, the industry continues to skyrocket. This year alone has seen a lot of change.
After the 2023 passage of recreational marijuana in Delaware and Minnesota and the ballot measure in Ohio, more than half of the U.S. population lives in places where marijuana is legal for recreational use. New York state also finally started accepting recreational dispensary licenses after almost two years of adult-use marijuana being legal.
Looking Back at 2023
As 2023 comes to a close, many cannabis businesses are reflecting on this past year and looking ahead into 2024.
“As I reflect on Green Thumb’s performance over the last year, I am optimistic about the opportunities that lie ahead in 2024,” Ben Kovler, Founder, CEO and Chairman at Green Thumb Industries, says. “Our long-term strategy of creating brands and products that resonate with the consumer, remaining disciplined with our capital allocation and driving growth that generates cash flow positions us to continue investing in the business in 2024.”
A recent Gallup poll revealed a record 70% of Americans support cannabis legalization, which shows more than ever that Americans are choosing cannabis for well-being. In 2024, Kovler notes that Green Thumb will continue to connect people to the cannabis experience in innovative ways.
“We are excited to build on the momentum from the recent adult-use sales launch in Maryland as we prepare for transitions in Ohio, Minnesota and hopefully other states that may have adult-use on the ballot in 2024,” he says.
Becoming the first U.S. plant-touching operator to list on the TSX, attaining the #2 market share position in NJ and going from zero retail in Maryland at the start of the year to acquiring and operating four thriving locations in the state are just some of the highlights for TerrAscend from 2023.
“I’m also proud of how TerrAscend significantly reduced our debt and interest expense while becoming fully free cash flow positive for the second half of 2023, all while driving industry-leading growth,” says TerrAscend Executive Chairman Jason Wild. “Those accomplishments set us up for a great start to 2024.”
Looking Ahead to 2024
David Goubert, President and CEO of AYR Wellness, predicts that Management Services Organizations (MSOs) will be focusing on the financial health of their companies, prioritizing cash flow generation and fostering leaner, more efficient operations.
“If rescheduling and 280E relief occurs as anticipated, annual tax expenses would decrease, allowing companies to pay down debt and reduce annual interest expense,” Goubert says. “This, coupled with the prospect of Adult Use in Ohio, Pennsylvania and Florida, has the potential to result in significant de-leveraging by 2025.”
Hopeful for cannabis rescheduling is Ed Schmults, CEO of StateHouse Holdings. “The HHS’s recommendation to reschedule cannabis to Schedule III was welcome news, although about a decade late,” he says. “We are hopeful that the federal government takes the steps necessary in the short term to see this change through, but we are realistic in our expectations on timing for implementation.”
Progress in the Cannabis Industry
Morgan Paxhia, Co-founder of Poseidon Investment Management, has a pretty detailed vision for 2024. “The forthcoming year will be the most exciting ever in the industry. I foresee the federal government reclassifying cannabis rescheduled as a Schedule III controlled substance on April 20, 2024,” he says.
Immediately afterward, Democratic leaders like Senator Chuck Schumer and Senator Cory Booker will hold press conferences to try and take a victory lap, according to Paxhia. In response, certain members of Congress will attempt to stifle this reclassification and force an egregiously high 14% excise tax, which some will try to prop up as a compromise.
Having extensive experience in investing and finance, Paxhia has dedicated his investment focus primarily to the cannabis industry since 2012. This has allowed him to get a better understanding of what the industry lacks and how it can move forward prosperously.
“Additionally, I believe hemp-derived Delta-9 THC products and other naturally occurring intoxicating hemp-derived cannabinoids will be forced into regulated channels, closing the Farm Bill loophole,” Paxhia suggests. “Unfortunately, we will see no SAFER Banking Act progress.”
Increasing Market Opportunities in Cannabinoid Therapeutics
Since FloraWorks’ inception in CBN manufacturing in 2020, the market has surged to well over $277 million in recreational sales alone, according to the CEO Alleh Lindquist.
“In 2024, cannabinoid therapeutics will become the leading emerging market opportunity in the cannabis industry,” says Lindquist. “CBN-infused products dominate the top-selling SKUs for five out of the top six national edible brands, driving the global market to an estimated $1 billion.”
According to MJBizDaily, edibles containing CBN accounted for 11% of California edible sales in June 2021, up 6.5% from 2020.
“Looking to 2024, I expect to see the market becoming more invested in CBN as a potential alternative to other natural sleep aids and existing pharmaceutical options,” Lindquist predicts. “I also expect to see a continued upward trend in cannabinoid-research as our industry seeks to discover the vast therapeutic potential of rare and novel cannabinoids, paving the way for innovation and growth.”
Continued Growth in Cannabis Beverages
THC-infused beverages have continued to grow in popularity as more consumers choose better-for-you beverages. Many brands, including Boston Beer, have been pivoting with this trend to give consumers what they are looking for.
“As the newest generation of drinkers reevaluate their relationship with alcohol, the popularity of cannabis beverages are an enticing alternative,” says Paul Weaver, Head of Cannabis at Boston Beer. “The success of TeaPot, our line of THC-infused iced teas, highlights this emerging demand and we can’t wait to see how the category grows.”
Whether it’s a marijuana-derived beverage sold in a dispensary or a hemp-derived beverage sold in a liquor store, cannabis drinks are challenging the status quo, have a growing fanbase and represent the future of adult consumption, according to Weaver.
California Has Some Work To Do
Schmults says that California continues to be a challenging environment to operate within.
“We are seeing some submarkets begin the licensing process to allow cannabis operators a path to licensure,” he says. “This should provide some nominal level of market growth for the state over the coming year.”
The more mature markets, however, are continuing to deal with added pressures to issue additional licenses within their jurisdictions, effectively splitting market share between a larger number of operators and bringing revenues down to potentially unsustainable levels. The mature markets are expected to continue to become more saturated for the foreseeable future, according to Schmults.
Taxation is also still a disaster in California. “A material number of operators are flat out not paying taxes while others are taking advantage of theoretical tax loopholes as the CDTFA works to close them,” adds Schmults. “With only a small segment of the market participants current on taxes, it begs the question of when the state will act.”
Working Towards a Brighter Future for Cannabis
Despite the industry continuing to permeate mainstream culture across the U.S., there’s still much work to be done. According to Roger Volodarsky, CEO and Founder of Puffco, the next phase of the cannabis industry begins with internal alignment.
“As I see it, we still don’t have a unified industry, and we aren’t advocating enough for the needs of small businesses and legacy producers,” says Volodarsky. “We need a coalition of people that represents the needs of the already existing community of consumers—and the people who provide cannabis to them—to make sure that federal legalization isn’t just a transfer of power over to mega corporations whose only interest is capital.”
For cannabis operators that are not a part of the community that you serve, Volodarsky recommends spending more time with them. Talk to people, hold yourself accountable to their needs, step into their community and make sure its members feel served.
“As we approach 2024, the U.S. cannabis industry finds itself at an exciting point in time. With the government’s recent actions on issues like SAFER and rescheduling, the end of cannabis prohibition has never felt closer to becoming a reality,” says Socrates Rosenfeld, CEO and Co-founder of Jane Technologies.
