Up and Coming U.S. Cannabis Markets and Issues to Watch in 2022 and Beyond

All signs point to continued growth in the United States cannabis industry during 2022, specifically, in states where adult-use markets could open. Growth is expected to come despite the challenges businesses already operating in the legal cannabis industry are facing, including high taxes, compliance obstacles, regulatory problems, and the black market. 

According to the Whitney Economics U.S. Cannabis Business Conditions Survey, only 42% of operator respondents report turning a profit from their businesses, while 20% are breaking even, and 37% are not profitable. These results are the same for businesses operating in both mature and immature markets across the United States. Despite that very real and measurable problem, industry growth is expected to continue.

States Where Adult-Use Markets Are Coming

Seven states have already approved adult-use cannabis, and processes are in place to determine program rules, grant licenses, and launch sales. These seven states are Connecticut, Montana, New Jersey, New Mexico, New York, Vermont, and Virginia. 

While sales won’t debut for each of these states in 2022, all eyes are on them, particularly states in the Northeast where populations are high and sales are expected to be significant. According to Headset, the 2025 total market estimates for each of these seven states are:

• Connecticut = $2.2 billion
• Montana = $0.8 billion
• New Jersey = $7.0 billion
• New Mexico = $1.6 billion
• New York = $15.1 billion
• Vermont = $0.5 billion
• Virginia = $6.5 billion

In total, these seven states could increase the size of the U.S. cannabis market by $33.7 billion within just three years, and $24.3 billion of that money would come from the tristate area of Connecticut, New Jersey, and New York.

RELATED READING: Cannabis in Connecticut, New Jersey, and New York: What’s Next?

States Where Adult-Use Cannabis Could Be Approved

Among the states that have not yet approved adult-use cannabis, several are drawing a lot of attention as the ones most likely to approve it through legislation or through ballot initiatives that would allow residents to vote on adult-use measures in November 2022.

Florida offers one of the largest potential adult-use markets, but it appears unlikely that a ballot initiative will make it through all of the necessary hurdles until 2024. Wyoming is also looking at a 2024 ballot measure. States that could get adult-use cannabis on the November 2022 ballot include Arkansas, Maryland, Missouri, Ohio, Oklahoma, and North Dakota. 

Other states that have seen some action by advocacy groups or lawmakers to legalize adult-use cannabis in the next few years include Delaware, Hawaii, New Hampshire, Pennsylvania, and Rhode Island. 

Given the pending launch of adult-use cannabis sales in Connecticut, New Jersey, and New York, which will join Maine, Massachusetts, and Vermont in having both medical and adult-use cannabis markets, it seems logical to assume Delaware, Maryland, New Hampshire, Pennsylvania, and Rhode Island will follow suit in the not so distant future and make adult-use cannabis legal throughout the entire Northeast. 

RELATED READING: 5 Ways the Cannabis Industry Will Change in 2022

What Companies Can Expect

Multi-state operators, large companies, and ancillary companies are likely to continue growing in 2022. However, consolidation will get even more active and intense than it already is. In an industry where less than half of businesses report turning a profit, things are getting more competitive all the time. 

In its research, Whitney Economics found that 39.4% of survey respondents believe the industry is headed in the right direction while 41.5% do not think the industry is headed in the right direction. Another 20% had no opinion on the matter. 

Interestingly, in new emerging markets, operators have a more favorable opinion of the direction the cannabis market is heading (70.2% have a positive opinion) then operators in mature markets who are more pessimistic (only 34.5% have a positive opinion).

Looking at sentiment data based on operators’ sectors, cultivators and retailers are the most pessimistic about the direction the industry is heading (only 31.1% and 32.1% have positive opinions, respectively) compared to manufacturers (48.1% positive), testing labs (50.0% positive), and ancillary businesses (56.9% positive).

Another key finding from the Whitney Economics survey is that vertically integrated operators are more positive about the direction the industry is heading in than other operators, and the more businesses included in their vertical operations, the more positive the feel. Here’s the breakdown:

• Vertically integrated 2 or more businesses = 38.56% positive
• Vertically integrated 3 or more businesses = 42.9% positive
• Vertically integrated 4 or more businesses = 45.2% positive

Unsurprisingly, larger companies with more control of the supply chain and the markets they operate in are more confident about the future of the industry than smaller operators with limited or no control. That finding paints an interesting picture of what future growth could look like in the U.S. cannabis industry.

RELATED READING: The Future of National Cannabis Brands

Obstacles that Keep Getting in the Way

We all see the news stories every day about high taxes, compliance hurdles, the black market, and more. All of these obstacles make it very difficult – if not impossible – for operators to generate a profit. The Whitney Economics survey results show just how big the problem really is with just over one out of three (37%) operators reporting that they are profitable.

With industry growth will come more challenges, so operators need help solving existing problems in 2022. According to the survey, the top five issues that keep operators up at night are:

1. Lack of banking or financial services = 57%
2. Market and price volatility = 56%
3. Big business competition = 42%
4. Taxation = 39%
5. Too much competition = 38%

When asked what the top issues the U.S. cannabis industry is facing overall, operators provided similar responses with the top five being:

1. Lack of access to banking or investment capital: 70.9%
2. Interstate commerce – allowing trade from state to state: 65.5%
3. Large corporations driving out the small craft operators: 57.7%
4. Taxation = 45.4%
5. Market saturation – too many licenses: 43.6%

And when asked what their top regulatory concerns are, the top five issues were identified as follows:

1. Access to banking and other financial services: 64%
2. Market saturation – too many licenses: 50.6%
3. Taxation: 48.8%
4. Illicit market competition: 45.5%
5. Big business competition: 41.9%

Clearly, operators are most worried about a lack of banking, competition, and taxation among other key issues. For the U.S. cannabis market to keep growing and thrive in the future, these problems need to be addressed sooner rather than later.

RELATED READING: Looking Ahead to the Cannabis Industry in 2022

Key Takeaways about Emerging U.S. Cannabis Markets and Trends

Growth will continue in the U.S. cannabis industry during 2022 and years to come. However, there are issues that need to be addressed to make this a fully-functional industry. Until that time comes, businesses will continue to struggle to generate a profit and keep their doors open for another year.

You can keep track of all cannabis licensing data and connect with legal operators to grow your business in 2022 and beyond by subscribing to the Cannabiz Media License Database. And to track cannabis industry mergers, acquisitions, and more, you can subscribe to Cannabiz Intelligence™. Schedule a demo to get started.