Cannabis Sector Navigates Mixed Economic Landscape in Q1 2024
The cannabis industry faced a blend of economic challenges and opportunities during the initial quarter of 2024. A discernible sequential decline in sales was reported across several states, with analysts attributing this trend to varying factors. Pablo Zuanic, a senior analyst at Zuanic & Associates, provided in-depth insights into the sector’s performance, with a particular focus on the activities of multi-state operators (MSOs) and their presence in pivotal states such as Arizona, Connecticut, Florida, and others.
Q1 2024 Financial Performance: State-by-State Overview
Sales declined in most states during Q1, with exceptions including Florida and Pennsylvania. Connecticut experienced a 6% decline, while Illinois reported a 4% drop. More moderate decreases were observed in Massachusetts, Ohio, and both Michigan and Maryland, with a 1% change in each. Pennsylvania, in contrast, saw a 3% increase, demonstrating resilience amidst sector-wide struggles. Each state exhibited unique trends impacting sales and market dynamics.
State-by-State Performance and Leading Operators
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California
: The market faced a 6% year-on-year decline, adjusting to a $5 billion size. Notable MSOs like Cresco Labs and Green Thumb Industries have scaled back operations, reflecting a strategic pivot within the state. Other prominent MSOs include TerrAscend and 4Front Ventures.*
Michigan
: The state stood out with a robust 24% year-on-year growth, leading to $793 million in sales for the quarter. Despite stable retail prices, the wholesale market has presented challenges with narrower retailer spreads. Ascend Wellness, Cresco Labs, and Verano Holdings are among the leading MSOs in Michigan.*
Illinois
: While there was a sequential sales dip, the year-on-year figures increased by 6%, indicating a market still finding its footing with increased retail establishments but facing pricing pressures. Cresco Labs, Green Thumb Industries, and Curaleaf Holdings are dominant players in the state.*
Florida
: Displayed growth stability with a slight 1% sequential increase and a 14% rise compared to the previous year. The market benefits from a consistent expansion in both retail locations and patient registration, indicating sustained demand. Trulieve Cannabis and Curaleaf Holdings are leading companies with significant market shares.*
New Jersey and Nevada
: Both states are grappling with market saturation and deflation, although Nevada’s tourism boost offers some cushion against declining retail prices. In New Jersey, key operators include Curaleaf Holdings and Green Thumb Industries. In Nevada, the market is led by companies like Planet 13 Holdings and Curaleaf Holdings, both benefiting from the tourist influx in Las Vegas.Operational Insights and MSO Performance
The rising number of retail locations, particularly in Illinois and New Jersey, has diluted revenues per store, pointing to an over-expansion that the market may not sustain in the longer term. Leading MSOs like Ascend Wellness, Cresco Labs, and Green Thumb Industries have effectively managed their brand distribution, which is crucial as the market shifts towards more mainstream retail models.
Sales Trends and Economic Indicators
Analyzing quarterly changes, the end of 2023 and the beginning of 2024 saw varying sales trends across key cannabis markets. California continued its downward trajectory, moving from a 12% YoY decrease in 4Q23 to a 6% YoY decrease in 1Q24. This suggests a slight improvement in the market’s decline rate. Conversely, Michigan exhibited strong growth in both quarters, with a 24% YoY increase in 1Q24 following a 27% YoY increase in 4Q23.
Retail and Pricing Dynamics
The sector’s retail landscape reflected notable differences in store economics and pricing pressures. Illinois reported a sales decrease of 4% sequentially in 1Q24 after a positive trend in 4Q23 (+3% seq). Florida’s market showed stable growth in both quarters but with a slight increase in sales velocity from flat sequential growth in 4Q23 to +1% sequentially in 1Q24. Retail prices across these states continued to stabilize or decline slightly, impacting overall revenue per store and pointing to a trend of market saturation and increased competition.
Strategic Shifts and MSO Activities
Multi-state operators (MSOs) adjusted their operations strategically to accommodate changing conditions, scaling their activities in saturated markets like New Jersey and Nevada while expanding in states like Florida and Pennsylvania, where positive sales trends offered growth opportunities. Companies like Trulieve and Curaleaf capitalized on these opportunities.
