Leading industry researcher New Frontier Data has just updated its prediction for the years to come, and it’s a doozy. In our last issue, we quoted their prediction that the U.S. market would grow to $38.3 billion by 2025. That has just been raised to an estimated $41.5 billion of legal cannabis sales in 27 states (with California, Illinois, Florida, Michigan and Colorado topping the list.)
In terms of projected compound annual growth rate, it’s seen as 21% for the total market. That breaks down into a 19% CAGR for the medical cannabis marketplace, and a 23% CAGR for the recreational cannabis marketplace. Sparking this trend will be new states making the transition to legal cannabis, and increasing public consumption as the health, wellness and therapeutic benefits of cannabis become more widely accepted.
It should be noted that the COVID-19 pandemic helped accelerate this movement. The country’s “new normal” living conditions sparked a growing demand for cannabis, and this is reflected in these rosy projections. Consumer product preferences are also evolving, and the rush to create national consumer brands — the newest being Jay-Z’s “MONOGRAM” luxury small-batch brand with $40 prerolls and $50 handrolls — is fostering greater interest.
Of course, this does not count the illicit market, which remains the largest share of the total pie. Most consumers live in states where either cannabis is still illegal, or only available for medical use. It has been estimated that the total annual illicit sales in the U.S. currently reaches nearly $70 billion, and state legalization does not completely disrupt the illegal market. Nevertheless, it is significant that with the five new states where voters welcomed legal cannabis last month, more Americans now live in states with some form of legal cannabis use versus states where all usage is prohibited. Around 39 percent of U.S. cannabis sales are estimated to take place legally by 2025.
The most important wild card is what will happen with federal action on the legalization of cannabis. Should federal cannabis laws be relaxed or repealed, the legal market size could rocket upwards. With the new incoming administration and the growing public dialog over criminal justice reform, cannabis could be rescheduled from its current state as a Schedule I controlled substance (side by side with heroin and LSD) to a lower Schedule II (oxycodone and fentanyl) status or even the lowest tiers (products containing codeine.) Or ideally, cannabis could someday soon be descheduled and be subject to the same regulations as alcohol. This could completely erase the illicit marketplace.
And as additional state legislatures move to legalize cannabis, these projections will again need to be revised upwards. The most likely candidates in the coming years include New York, Connecticut, Pennsylvania, Ohio, Maryland and New Mexico — all states where legalization in neighboring locations presents a challenge to stretched-thin tax coffers.