Cannabis Market: Top US States to Watch in 2019

Successfully investing in the cannabis industry means knowing what companies and sectors are hot, and which will be next. Currently, nowhere is hotter than the US market. Though the federal government still prohibits cannabis, 11 states and the District of Columbia have legalized it for recreational use, and 22 more have legalized medical cannabis. In addition, the passage of the 2018 Farm Bill opened up the CBD market and brought even more attention to the US.

So which states are the hottest for cannabis investors? To help keep you up-to-date, here’s a snapshot of some of the top states to keep your eyes on, from mature markets that were the first to legalize to up-and-coming markets ready to catch fire. Though it’s hard to determine which specific state will be the hottest investment opportunity, one thing is looking increasingly clear: 2020 will be a massive year for the cannabis market.

Established Markets Looking to Innovate


(Cannabis Cafes are coming to Colorado)

Colorado

One glance at the cannabis market in Colorado illustrates that the first-mover advantage is no joke. This year, the first state that legalized cannabis announced that it surpassed USD $1 billion in total cannabis-related revenue, and that’s just for the state. Over the last five years since legalization, companies have made more than USD $6.5 billion in sales, with USD $1.2 billion coming from recreational cannabis sales in 2018 alone.

Not content to sit idly while other markets ramp up, Colorado continues to look for ways to grow its advantage. By embracing cannabis tourism and a market-friendly approach, the state’s per-person sales of $280 per year are the highest in the US, and April and May of this year were the highest-grossing months yet.

The state's government is also doing it's part to come up with ew investment opportunities. One recent bill signed into law allows the creation of social-use businesses like cannabis cafes and lounges, as well as allowing hotels and restaurants to apply for consumption and sales permits. Another allows for cannabis delivery to get going over the next two years, and a bill specifically targeted at boosting investment was signed that allows out-of-state investors to buy into Colorado’s cannabis companies.

Oregon

In contrast to most of the other states that launched their recreational cannabis market slowly, Oregon opened the floodgates from the get-go. A very liberal distribution of licenses led to many producers and retailers, as well as a rapid increase in sales from USD $523 million in 2017 to USD $643 million in 2018. Now, the state faces a problem of oversupply, dropping the price of cannabis across the state and hurting producers that are forced to sit on inventories.

Oregon’s government, for its part, has responded by passing bills that curb excess production and attempt to transfer surplus cannabis into new markets. However, any hope of exporting cannabis relies heavily on a federal shift. For Oregon’s cannabis businesses to capitalize on their expertise and surplus of production, they’ll either need to get creative, or bank on sweeping federal policy changes in 2020.

Washington

Like the other mature markets of Colorado and Oregon, Washington state is focused on what’s next. An overly abundant supply has dropped cannabis prices, but sales continued to rise through 2019. Even as the market’s growth rate has reduced from its formative years, when average monthly sales leapt from USD $21.6 million in 2015 to USD $65.5 million in 2016, Washington’s cannabis industry is still projected to be valued at USD $2.1 billion by 2020.

Earlier in the year, the state’s government signaled that the hemp market was the next play. In April it passed a bill that opened Washington to hemp production and removed a mandatory four-mile buffer between cannabis and hemp farms meant to protect cannabis plants from cross-pollination. While the cannabis businesses in the state will continue to look for new ways to grow the market, an abundance of hemp cultivation is expected to be the state’s next big offering.

Growing Markets on the Rise


(Michigan has quietly grown into a massive cannabis market)

California

When California fully legalized cannabis in 2016, everyone expected it to become the biggest legal market in the US. It quickly achieved that goal, accounting for 34% of the 2018 legal market in the country, but the rollout has been extremely flawed. A cumbersome licensing system and municipalities refusing cannabis sales have led California’s government to earn far less than it estimated, pulling in about a third of its projected USD $1 billion in tax revenues last year.

Despite the setbacks, and despite the illicit market still accounting for well over 60% of cannabis sales in the state, California is one of the most important cannabis markets in the world. Considering that its legal market is already the largest in the nation even though it’s not operating at full capacity means that it has a lot more room to grow. As state politicians and local businesses move to grow the market, the Golden State’s slice of the pie will continue to grow.

Michigan

Many may be surprised to learn that Michigan is the second largest medical market in the US, behind only California. After medical cannabis became legalized in 2008, the cannabis industry in the state has blossomed and in 2018 the state government estimated its worth at over USD $830 million. It shouldn’t have been a surprise that in 2018, voters approved recreational cannabis, especially considering that approximately 3% of residents hold a medical cannabis card.

Thanks to a protracted regulatory process, the recreational market can won’t be open until at least 2020, at which point both existing medical license holders and new entrants will be able to enter the market. Still, the Michigan cannabis market continues to grow at a healthy rate and is expected to reach USD $1.3 billion in 2021.

Nevada

The cannabis market in Nevada has continued to grow exponentially since recreational sales were legalized in 2017. After the first full year of legalization wrapped up on July 2018, retail sales in the state totaled USD $530 million. In the following six months, businesses rounded out the year by bringing in an additional USD $884 million in combined medical and recreational sales.

Though many counties in Nevada continue to turn their backs on cannabis sales, Clark County, which is home to Las Vegas and almost 75% of the state’s residents, has been more than accommodating. By 2020, cannabis sales in the state were expected to grow to over USD $620 million. Now that local governments have started authorizing social-use venues, a smart way to capitalize on the 47+ million annual visitors to Las Vegas, that sales total looks like an underestimate.

The Next Big Markets to Watch


(Three states look likely to legalize recreational cannabis in 2020)

Arizona

A lot of change can happen in a few years, and Arizona’s cannabis market is a prime example. In 2016, a proposition to legalize recreational cannabis failed by an incredibly narrow margin, with 48.7% in favor. Since then, improved favourability by the public towards cannabis, a booming medical market, and less negative campaigning by the current government have many believing that Arizona is a shoe-in to legalize cannabis in 2020.

Even without an adult-use market, Arizona has a massive cannabis industry. Since the state legalized medical cannabis in 2010, it has grown into the 3rd largest medical market in the US, generating around USD $400 million in revenue last year, and projected to grow to more than USD $700 million in 2020. If the market opens to recreational cannabis as well (as many expect it to), it’ll only be a matter of time before that valuation skyrockets.

Illinois

The latest state to legalize recreational cannabis has a lot of growth to do in a very short amount of time. Unlike other states on this list, Illinois was the first state to legalize cannabis through legislation instead of at the ballot, but the existing market is relatively small. Currently, the state’s medical cannabis program numbers around 79,000 patients, which isn’t much considering medical cannabis in the state was legalized back in 2015.

With sales for the adult recreational market starting on January 1, 2020, that small market is going to grow to include more than 12 million residents (not including the 50+ million tourists that visit Chicago annually). That ripe cannabis market, expected to reach USD $1.3 billion by 2023, is what makes Illinois a state that many are watching. After all, the existing producers and business that service Illinois will undoubtedly need help, and investment.

Florida

A relative newcomer to the medical cannabis market, Florida has quickly become one of the fastest-growing markets in the US. After voters voted in favor of medical cannabis in 2016, the state started off slowly, handing out licenses to only a handful of companies that applied. Since then, the number of patients started to grow rapidly, from 100,000 in April of 2018 to more than 200,000 this year, with more than 10,000 new patients enrolling each week.

Likewise, the government has had to open up the market to be more competitive. It started approving more licenses, repealed a ban on smokable flowers, finalized laws on edible products, and ruled that companies couldn't monopolize Florida's market through vertical integration. Now, almost two dispensaries a week are opening on average across the state.

If recreational cannabis starts to gain traction in the South, Florida will be one of the biggest markets in the US. But even at its current rate of growth, it’s projected to eclipse $2 billion in medical cannabis sales within five years and capture 13% of the entire legal cannabis market in the US.

New Jersey / New York

Last year, it looked like a short matter of time before both states along the Hudson River would become the next biggest cannabis markets. In New Jersey and New York, government officials strongly supported passing legislation to legalize recreational cannabis, but proposed bills in both states fell through this year as a consensus on a number of crucial details couldn’t be reached.

Instead, the focus turns towards 2020. Legislators will have a chance to pass more robust bills, and many states have shown that the second time’s the charm with regards to cannabis regulation. If they can’t agree, the question could be put up to voters, which local polling indicates would also likely pass.

Once (and if) they legalize recreational cannabis, the two states will be amongst the biggest recreational markets in the US. In fact, many analysts are expecting that in the next few years, the West Coast’s strong share of the legal cannabis market will be lost to the East Coast. The question is, how long will it take them to get rolling?


For more info on the cannabis sector, including tips on how to invest, check out the Cannabis Stocks hub on Stockhouse.