Debra Borchardt
Globally, cannabis consumers spent an estimated $35 billion in legal markets in 2022, with total demand in both legal and illicit markets closer to $460 billion, according to New Frontier Data’s latest modeling.
We’re Number One
New Frontier’s latest report, Cannabis Capital: 2023 Industry Market Report, highlighted that the North American market is still the global leader for cannabis consumers, with the U.S. and Canada accounting for 96% of legal cannabis sales in 2022.
In the U.S., states with legal industries commanded 85% of that market, recording $30 billion in sales, according to New Frontier’s data. Despite cannabis still being federally illegal, the U.S. reported 10x the amount of cannabis spending than any other legal country.
With even more states legalizing adult use in 2023 and 2024, the U.S. market will continue to dominate globally.
Even though Canada was the first country to fully legalize cannabis, it comes in second behind the U.S. with only $4 billion in legal sales in 2022. Part of that is purely due to population size, which is one-sixth the population of just the states with legal markets in the U.S.
Unlicensed Markets
One of the arguments for legalizing cannabis was that it would end the illegal markets. The theory was that consumers would prefer going to a dispensary over a street dealer. However, high taxes often caused legal cannabis to be so expensive that the illicit market continues to thrive – perhaps even more so with the influx of legal products entering the illegal market stream.
New Frontier estimated that the legal market is capturing just 30% of estimated annual cannabis spending in North America ($113 billion in 2022).
“As much of the world has not yet legalized cannabis in any form, nearly all of the demand resides in illicit or unregulated markets – 92% of all 2022 global spending on high-THC cannabis occurred in unregulated channels,” the firm wrote.
Bad Leads to Good
While wholesale pricing in California has improved slightly in the past month, the increase has not been sufficient for cultivators to realize profits. The report stated that this trend is likely to continue in 2023 as production capacity decreases following consolidations and operators’ sector exits.
At the federal level in the U.S., New Frontier expected little progress in regard to federal legalization, reclassification of cannabis, and tax issues such as 280E and/or banking reforms, which in turn will keep new investors out of the market.
No new legislation. Lack of profits. No access to bankruptcy courts. It just sounds depressing. However, all this bad stuff could lead to something good.
“Belt-tightening and consolidation will lead to a healthier industry, with a stronger standing to face the challenges of federal legalization,” said the report.
