Adam Jackson
The end of the second quarter is now in the rearview, and a new report by cannabis research firm Zuanic & Associates highlights the good, the bad, and the ugly with regard to cannabis performance for the period.
According to the Friday memo, the industry’s growth catalyst is primarily contingent on federal reform news rather than any fundamental performance metrics of multistate operating groups.
Also, less severe underperformance – or “less bad” – stock performance appears to be more beneficial than simply maintaining “still good” numbers, the analysis said. The former resulted in more significant positive market movement, whereas the “still good” performance resulted in minimal stock fluctuations.
Overall, the second quarter showed mixed results. Price deflation was still a factor but didn’t seem to be worsening. At the same time, several states recorded year-over-year declines that were less severe than in the past.
“In Illinois, the impact from Missouri rec is less than what we expected,” Pablo Zuanic, analyst and founder of the firm wrote. “Florida deflation in 2Q lessened; (year-over-year) trends between 2Q and 1Q improved in Arizona.”
“On the whole, this may mean better sales trends for 2Q, although profit margins may change little from market-related factors (with internal cost savings initiatives the larger driver),” he added.
Key Trends
One of the key trends highlighted in the report is notable year-over-year sales growth of 39% in Michigan, along with the state’s escalating sales momentum compared to recent quarters. Improved sales trends were also evident in Florida and Massachusetts. But, Zuanic warned, the second quarter “typically sees a seasonal bounce,” after soft first quarters.
Another interesting trend involves the dynamics between retailers and cultivators. The report posits that in most states, market conditions might favor retailers over grower and processors, with Arizona and Massachusetts being exceptions.
This is true “especially (for) the larger growers,” Zuanic said.
State-by-State
In Arizona, second-quarter sales remained steady at around $341 million, showing only a 1% year-over-year decline. Despite the lowest wholesale prices nationwide at $761 per pound, retail prices for flowers remain high, indicating a market favoring retailers over growers.
Meanwhile, California reported second-quarter sales of $1.25 billion, a year-over-year decline of 12%. Zuanic’s firm feels that the trend seems to be stabilizing, suggesting potential for future growth.
Colorado, despite a 14% year-over-year drop, continues to show a balanced market.
Florida and Illinois reported modest year-over-year increases, while Michigan’s sales soared 39%, reaching $792 million.
Missouri, thanks to its recent legalization of recreational cannabis, posted an impressive 286% year-over-year jump. Ditto for Maryland, which sold $21 million worth of product in the first seven days of recreational sales.
New Jersey and Ohio showed signs of slowed growth, as the latter’s legislative efforts languish in lobbyist and lawyer’s desks. On the other hand, New Mexico recorded positive sales momentum.
According to the firm, these state-specific trends suggest the cannabis industry remains highly dynamic, with unique challenges and opportunities in each state. The performance of the industry, the report says, largely hinges on the future federal reforms, dictating the trajectory of the sector.
