Leafly released its annual Cannabis Harvest Report revealing an unparalleled analysis of the last year of cannabis farming in the U.S. Cannabis surpassed potatoes and rice to become the sixth most valuable domestic crop, with Leafly estimating the value of legal cannabis at $5 billion.
Adult-use cannabis is grown at more than 13,000 farms and is the leading cash crop in Alaska, Massachusetts and New Jersey. The U.S. legal cannabis industry continues to grow each year as more states vote to legalize and regulate marijuana. Cannabis tax revenues have exceeded other industries like alcohol in states such as Illinois and Massachusetts.
Regardless of wholesale prices declining in various states, we expect cannabis to continue marching up this list, potentially becoming the second or third most valuable crop by the end of the decade. The trend is our friend as more legal access continues to open nationwide.
International Market for Medical Cannabis to Reach $40B by 2028
We talk a lot about the U.S. cannabis industry given its current size and maturity relative to global markets. However, we are starting to see meaningful progress globally with better visibility into its growth trajectory.
Analysis of the international medical cannabis market shows that it is projected to experience an estimated compound annual growth rate of 19% from 2022 to 2028, reaching $40 billion in value. The World Health Organization also reported that 80% of the world's population utilizes cannabis or hemp for medical treatments. The increase in global acceptance of medical cannabis is a big reason for the market's expansion, and international companies will now garner increasing attention and capital.
At the moment, international annual growth rates are more robust than the projected growth rates in the U.S. There are several public marijuana stocks and cannabis exchange-traded funds (ETFs) that have exposure or have the capabilities of investing in international companies as that market continues to grow rapidly. It is exciting to see the combined legal U.S. and international cannabis industries likely to exceed $100 billion annually by the end of this decade.
New York Denies Dispensary Access to MSO's
The long-term growth opportunities in cannabis are very attractive, but state regulations are halting development in some cannabis markets and causing uneven progression.
In New York, regulators released new guidance for dispensary operators, including provisions restricting vertically-integrated multi-state operators (MSOs) from opening dispensaries. The new guidelines state, "Retail dispensaries, their true parties of interest, passive investors, and any management service providers cannot have any interest in any businesses anywhere that cultivates, processes, or distributes cannabis." However, there is a potential that dispensaries will run low on inventory and still require help from MSOs to obtain products. This patchwork policymaking combined with the less-than-ideal implementation and structure of regulations can result in quite a range of market dynamics.
New York is a newer adult-use legal market, and they are off to a poor start. Right now, there is a danger of rampant illicit market activity with no enforcement. We expect to see challenges similar to the issues seen in markets like Los Angeles. The state is finally starting to explain its regulatory dynamics, and the first read is going to deter capital flows and a thriving adult-use market. As longtime industry participants, we believe this will result in a slower trajectory for New York versus a neighboring state like New Jersey.
Any of the securities identified and described herein are for illustrative purposes only. Their selection was based upon non-performance-based objective criteria. It should not be assumed that the recommendations made in the future will be profitable or will equal the performance of the securities identified.
Morgan Paxhia is Managing Director and Co-Founder of Poseidon Investment Management. With over 10 years experience in investing and finance, Morgan has developed a deep understanding of individual company analysis, portfolio construction, and risk mitigation. This content is not intended to provide any investment, financial, legal, regulatory, accounting, tax or similar advice, and nothing should be construed as a recommendation by Poseidon Investment Management, LLC, its affiliates, or any third party, to acquire or dispose of any investment or security, or to engage in any investment strategy or transaction. An investment in any strategy involves a high degree of risk and there is always the possibility of loss, including the loss of principal. This content should not be considered as an offer or solicitation to purchase or sell securities or other services. Any of the securities identified and described herein are for illustrative purposes only. Their selection was based upon nonperformance-based objective criteria. The content presented is believed to be factual and up-to-date, but we do not guarantee its accuracy and it should not be regarded as a complete analysis of the subjects discussed. Past performance is not indicative of future results.
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