Cannacurio Podcast Episode 54 | Q2 2023 Licensing Leaderboard Recap

On this Cannacurio episode, Cannabiz Media’s Chief Data Officer, Ed Keating recaps the Dispensary & Retailer, Cultivation and Manufacturing licensing activity & leaderboards for Q2 2023. Plus he touches on the unlicensed market, and the current moratoriums in place.

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Cannacurio Podcast Episode 54 Transcript

Ed Keating:

Hey there, this is Ed Keating Co-Founder and Chief Data Officer at Cannabiz Media. And I am back for another quarterly update on what's happening with licenses and license counts as we track them month to month. So let's get started.

First we’ll sort of hit the summary overview, and based on our count, we've seen regulators add over 1,300 licenses in Q2. And in comparing them to the number of licenses out there really not much has changed, there was not any great increase or decrease overall, but when we look at the different activities, we'll see some movement. So and as we highlight here, stores were actually up 7.6% probably not a surprise to most who are following this manufacturing, no change and then cultivation down 8%. So I think for most of us who follow this space, that's probably not all that surprising.

So as we said, there's 1,313 new licenses that we counted in Q2 and here's the breakdown. So 574 cultivators, 152 manufacturers and 587 stores/dispensaries. So you know not, a huge number and we'll compare and show what this year has looked like in terms of license issuance.

So here's the sort of i chart/table that will give you a little bit of background in terms of what was issued, in terms of total, active licenses. So you can see that the number hasn't changed all that greatly from 42,745 to 41,600. So I think it's about 1,000 difference across, you know, over 47,000 licenses. But one thing that we're sharing really for the first time in, in these presentations is we're also showing facilities.

So what Cannabiz Media does is we strive to go in and look at the licenses and determine which ones are joined together because they're at the same location and have the same owner. So the notion is we're trying to understand really the number of businesses that are out there, which is different than just a license because, well, the license we think is a great proxy for how the industry grows and drinks, the facilities move a little bit less slowly because let's say if there's a farm and they get rid of some of their licenses, there's still a farm. So you'll see this column throughout the remaining presentation as we touch on specific activities. So for those of you who like to look at it visually. This is really the same look here. It just provides a little bit more. And as we said, you know, total licenses have declined slightly but they're kind of masked by changes in, in the different categories. Whereas we saw at the outlet outset grow was down, stores are up.

So now we're gonna take a look at the three big license categories and we'll start with manufacturing.

So in Q2, we saw that 14 states issued licenses and I think the headline second point is there were 152 licenses were issued in Q2 compared to 365 that's down 58%. But anybody who's a student of license counts in the US is probably gonna know why. While California and Washington led, Oklahoma was really nowhere to be found in the second quarter. And you can see here that this year they issued 235 in quarter one and only five in quarter two. I mean, it's quite, quite a big change, even though their moratorium started last September, it's really been kicking in and we covered that in the blog posts, we did after the quarter ended on the specific activities. I mean, we've really seen how this works out and then this shows graphically what new manufacturing licenses were issued, sort of how that has changed throughout. And you can see back in January and February it was still pretty active, states, especially, Oklahoma was cranking out licenses. And, now as we get into Q2, it's a, it's a much lower, set of licenses being issued. And here is the table that, you know, really shows the same thing, but it gives you the real numbers and, you know, once again you can see the numbers didn't really change greatly - 6194 to 6189, that's the same. And really the true on facilities as well. So, and then finally, here's total manufacturing licenses and total facilities, you know, a visual of, you know, there's no real trend line to draw here. It would be pretty straight if, if, if we looked at it, so not a lot of movement there.

Now let's move on to cultivation. So there were 574 licenses issued in Q2 versus 630, by our account, that's a decline of about, you know, 9% Oklahoma share of all the new licenses issued. So keep that in mind, these are new license issues. They accounted for 54% in Q1 and dwindled all the way down to 1.4% in Q2. So, you know, that's just a giant change. And with all the news coming out of the state, all the information about the challenges they've had with enforcement black market, they know they've got a, a challenge there to take care of and it seems like they're really putting a lot of effort to it. And then finally, just where these licenses come from and 75% came from California, Michigan, Vermont and Oregon even, which is sort of odd since they also have a moratorium, but, I think some licenses are still working their way through the process, or at least that's what my team has has shared with me. This next slide I'm gonna put up shows how many new cultivation licenses have been issued by month for probably about 18 months or maybe more. You can see here this one, it's easy to draw the line, the trend is pretty straightforward. We’ve definitely seen a decline, you know, these big spikes, I think - yeah, September 2022 - this was in Oklahoma when it was moratorium time and people must have just papered the licensing office with applications and their $2,500 checks. But we can see now that this has really, really come down and, you know, given the challenges with oversupply, really not a surprise that we see this here in new licenses, and we often say that licenses are a lagging indicator of everything because there's paperwork. It's not something that happens immediately, but you can see here, there's definitely been a trend in place that goes back pretty far as cultivators and businesses trying to figure out what is the right balance in terms of supply. So, for once you can look at the table view, you can see here definitely a change where total cultivation licenses are down by our estimate about a little over 10.5% about 2,500 licenses from about a year ago. And then you can see here the change from December where it's a high of, you know, 22,000 and then just under 21,000. And, you know, we also have the, the notion of the facilities here where, you know, they are also declining but not as much. I think it's more been in some cases, a shrinkage of farms, at least in some of the states, in other cases, you know, the facility is simply one plot and, and that's all that we've got.

So now let's take a look at stores, which is probably the category we get the most questions about, and we have a lot of customers who track this information. So there were 587 new store dispensary licenses issued. And once again, the theme continues, Oklahoma only issued 11 store licenses in Q2 versus 332 in Q1. And this time New York minted almost 33% of Q2's new licenses. And, you know, when New York issues them, they pretty much come out as active even though we all know that the doors aren't open, they might not even have a place yet - but we go by what the state says, they are really our source of truth. So, trying to look at this national is a little tough on the slide. This is truly the i chart slide because it covers all the states that have issued this year and there's certainly a lot - but you know, we published this, it’s actually in one of our blog posts that we put out right after the quarter ended, so if anybody needs it, it's there or our emails will be shown at the end. Now let’s take a look at total licenses, this is a pretty important one you can see here that the active store licenses were 11,407 you know, at the beginning of the year and now they're up to 12,279. So we see licenses up by 7.6% and facilities up by 8.1%. So definitely some interesting movement there as you know, that's one place where we're seeing some growth.

Somebody's asked us how many licenses does an average facility own? It's a great question. I, I know when we looked at, at California specifically, it looked like each facility had at least three licenses. But I think the reason for that is just kind of the law of averages. There's a handful that have two and 300 licenses and then there's a bunch that have one. So, saying it's two or three might not be all that illuminating. But it, it's a good question. Certainly for further research, and, you know, cultivation is gonna be way different than, let's say, stores where it's typically only gonna be two and it's gonna be in those states that make you get a medical and a wreck license. So, good question, we need more data though. So we'll get back to you on that one.

And then this is what it looks like, you know, visually for those who kind of appreciate seeing it this way in terms of how the numbers have grown and we can see that it's definitely increased and is likely to continue. So as as more states come on board, I do want to touch a little bit more in Oklahoma, I know it comes across as a bit of an obsession but it was such the tour-de -force of licenses from 2018 on that it is I think important to see because I know many ancillary companies spent a lot of time and effort trying to penetrate that market. So in terms of what happened in Q2, for stores they only issued 11 licenses versus 332, cultivation 8 versus 338 and manufacturing, 5 versus 235 - so 1,2,3,4,5,6,7,8, it's like 900 licenses versus 22. I'm not gonna do the math that fast, but it's a big drop off and, pulling some of the data now from our, Cannabis Market Intelligence Platform, you can see here that the green are the licenses that were issued. So just total that were issued going back the last 12 months, but the blue is the net changes. And as you can see, it was going up here for a while almost till February of this year where it tended to be positive in some months. But now as we look to 2023 you know, later, certainly into the second quarter, we can see that the number of licenses in that state is shrinking. And I think with all the work that OMA and OBNDD are doing the two regulators there among others, law enforcement, I think we're gonna see even more of that. So that's sort of the overview of, of what's been happening in terms of, number of licenses and facilities and how they've changed.

I wanna just touch on some of the drivers for that or at least what we see is some of the drivers. So we talked about, moratoriums and, those are always interesting, rules for states to enact. Montana has one where, the adult use industry will remain closed off to new entrants for at least two years. I think that goes out a bit, I think there's at least another year and a half or so on that one. And then Oregon has one in place as well, although as I said before, they still are issuing some licenses. And then Oklahoma is probably the biggest and most profound. But there's also some rule changes. So we've had some clients ask us about what's going on in California, what drives that decline? And we did some research and looked at the number of large licenses. So when California enacted its licensing scheme, large licenses were not going to be issued until January 2023. And in Q1, I think two were issued, although they seemed not even to stay open or stay active. However, in Q2, we had about 26 that were issued and, and what that allowed these facilities to do is essentially shrink the number of licenses they had, they didn't need to have 20 or 30 or whatever they could say, hey, we have a large license and put them under that one umbrella. So it does shrink the number of licenses. And in the blog post, we did, I think we actually came up with a number and showed the farms that, that actually had employed these to, to bring down the the license count. But I imagine it makes their record keeping a little bit easier, not sure about the licensing cost, but, you know, that may be on a case by case basis. So definitely an interesting challenge there and then, just following the news which we, you know, I, I'll see every morning what's going on in the state. So I just saw this week that Alabama unissued and then reissued a whole bunch of licenses. So that causes all sorts of confusion in the marketplace. New York has yet another lawsuit that's put their system on pause. And then this morning, I woke up here in my home State of Connecticut to a lawsuit that is being filed down in Stanford where they're trying to say that, you know, the whole program should be thrown out because cannabis is federally legal and it's a bad thing and it shouldn’t be in the state. So, you know, another day, another lawsuit, but I, I expect to see this to continue as more states try and enact this and, and move things forward.

The last area I wanna focus on is a different kind of leader board. So over the summer, we launched unlicensed licenses and have come up with a leader board of where we found them. We've been researching the unlicensed market for a lot of reasons. One to just try and understand it - How big is it?, Where, where are these businesses located right now?. We’ve gathered over 1000 I think, and we have several 1000 more in the queue. The exciting thing for us is three quarters of this data is derived from government sources. So, and we, we've only focused on California, New York and DC. But there's a lot of information out there. If you think about it, many of these businesses, you know, do need to attract customers so that they do have a public face in some ways. But we've also worked to try and find information through regulators and others just so that our users can map and understand, you know, where might these businesses be? And, and, and what does that mean for, for our customers? What does it mean from a compliance standpoint? I know that one of our sales people was showing this feature to one of the prospects and the person said, oh, that guy reached out to me and he wanted to use our services but he couldn't produce a license so we didn't go with him. So, you know, it's definitely, I think gonna be illuminating as people see who these licenses are and where they are. And, you know, on the, on the right side of the screen, here's a map in New York of Noise NYC. And the fascinating thing is that this is like a single state operator. I don't know if they, they actually may be an MSO if, if they, they've gone to another state but, you know, here they've got not one store but a handful of stores. So it's really a force here and it's an information challenge for us, but one that we've learned a lot about the industry and it's, you know, interesting to see how each of the regulators across the country are gonna manage this. So, so we'll be doing more reporting on, on this as well. We know we'll never get all this information, there’s just too much of it. However, there's a lot of data that our team has been able to find by a lot of judicious digging.

So, I wanted to pass along our contact info. If you do have any questions you can reach out to us. And I'm also happy to take any additional questions that that you all might have today.

All right. Well, it's looking like there aren't a lot of questions coming in. So, as I said, you've got my email here and happy to take any questions.

Oh, it looks like one stuck in under the wire here - “Have you run into stores that have a license in one state, but are unlicensed in another one?”. I don't, I can't think of an example where somebody has pulled that off and I don't know if that means has an illicit store someplace else. But I don't know if that's happened. I have heard of cases where growers have a legit license and are selling product of the back door as well. And that's happened in a couple of times, mostly in California. And I do know that there have also been cases, here in Connecticut where people have been shut down for selling cannabis, even though they had what I'm calling an adjacent license. So in addition to tracking these 1,000 illicit stores, there's also quite a few vendors who have licenses that allow them to sell vapes or tobacco, and some of them sort of skirt the law and try and sell cannabis cartridges, THC cartridges for those vapes. So, here's a case where they have a legitimate business and an unofficial illegitimate one. But, you know, the two cases I've seen in Connecticut have resulted in, you know, sting operations where people got shut down. But I think we all know that for every one you find there's a lot that you'll probably never find so great question and, and, and we expect to see, sadly, probably more of that as we continue to research the other side of the marketplace.

All right. Well, if you have any additional questions, don't hesitate to reach out and, look for our next blog post at the end of Q3 where we'll see how these moratoriums have held and also how the market is able to move ahead. Thank you.