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The Consumer Demand For Adult-Use Cannabis In The United States Is Showing Zero Signs Of Slowing Down

Apr 1, 2022 • 7:55 AM EDT
5 MIN READ  •  By Michael Berger
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Consolidation has been a major theme with the global cannabis industry and this is a trend that we expect to become more significant in 2022 and beyond. 

In the United States (US), legal cannabis is one of the few topics that have bipartisan support and expect to see a change in federal legislation in the near future. We believe the legalization of cannabis in the US is the most significant potential catalyst for the entire sector and hope that pro-cannabis legislation advances through the House of Representatives and the Senate in the back half of the year. 

During the last year, the landscape of the US legal cannabis industry has significantly advanced. When it comes to cannabis legalization in the US, we consider the shift in sentiment in highly conservative states has been the most encouraging trend for the industry. 

Over the next year, we expect additional conservative states to legalize some form of cannabis. We are also closely following states which have an active medical cannabis program which plan to allow for the sale of recreational cannabis in the near future. We consider these themes to be two significant growth catalysts for the global cannabis industry and will closely follow the market advances from here. 

New Mexico is a good example of a state which will let licensed operators start selling recreational cannabis on April 1st and we will monitor how the market performs. According to MJBizDaily, the state could generate between $100 million and $125 million of revenue in the first year. By the fifth year, New Mexico’s market could be generating between $325 million and $400 million of revenue. 

New Mexico: The First State to Share a Border With Texas and Legalize Cannabis 

When compared to other states that border Texas, New Mexico will be the first to allow for the sale of recreational cannabis. We expect the state to benefit from the amount of demand for cannabis from Texas residents and consider this to be an important pillar of New Mexico’s cannabis market.  

The opening of the recreational cannabis market in New Mexico comes one year after legislation was passed by state lawmakers. Initially, licensed businesses can start selling recreational cannabis on April 1st, while the rollout for producers and retailers that are in the process of being granted a license or constructing facilities will be more gradual. 

When we conduct analysis on a cannabis market in the United States, the structure of the licensing program is one of the first areas we look into. According MJBizDaily, New Mexico’s cannabis program does not have a limit on the  number of licenses that can be granted. 

Although we are favorable on the geographic location of the state’s cannabis industry (especially due to it boarding Texas), New Mexico is facing a major drought. To protect the environment, applicants need to prove they have a water source or rights to meet their needs. The state is working to pass energy-efficiency rules for the cannabis industry and we will monitor how these factors impact the growth of the market. 

Last year, New Mexico’s largest cannabis company, Ultra Health, said it expects between 40% and 42% of recreational cannabis sales will be from out of state purchases. Because of this, several licensed New Mexico cannabis retailers have a presence near the Texas border and we are bullish on the geographic location of the stores. 

Will New Mexico Face Supply Shortages?

We believe that New Mexico’s recreational cannabis industry could initially face supply shortages and retail saturation. If our concerns prove to be accurate, it could take almost a decade for the state to generate more than $1 billion of sales revenue per year. 

Although New Mexico’s rate of growth is expected be slower than states which recently legalized recreational cannabis (i.e. Illinois or Michigan), state regulators have passed amendments that should alleviate supply shortages in the future and we are favorable on the steps that have been taken to mitigate this risk. 

Earlier this year, state cannabis regulators passed a rule that would double the amount of plants that can be cultivated by licensed operators. Over the next year, we expect the change to the total plant count to alleviate supply shortages and believe it will take time and resources for cultivators to expand operations. 

During the last decade, we have watched several cannabis markets in the US face similar supply shortages and retail saturation. It took years for early movers like Oregon and Washington state to solve supply and saturation related issues and we will monitor how New Mexico learns from these mistakes to solve its challenges. 

Challenges Create Opportunities

Maryland is another cannabis market that we are highly focused on after a Maryland House committee passed a Senate-approved budget bill earlier this month. The new amendments would allocate approx. $52 million to support the implementation of cannabis legalization, facilitate expungements for prior cannabis convictions, and fund a study to learn about the barriers to entering the cannabis industry.

With several states on the verge of legalizing recreational cannabis, we expect to see more consolidation of US operators. As a standalone business, many mom and pop cannabis businesses will face enormous competition from large scale multi-state operators (MSOs). As a result, we expect many small-scale/mom and pop operators to be acquired by high-profile MSOs in order to survive.  

We believe the US cannabis industry will remain in the early innings of a major growth cycle until federal regulations are changed. From banking reform to legalization/decriminalization, we expect the US cannabis industry to benefit from any type of legislative advancement and our readers need to be aware of this.

If you are interested in learning more about the US cannabis industry, please send an email to with the subject “Leading US Cannabis Operators” to be added to our distribution list. 

For the fastest access to data on the US cannabis industry, sign up for our free newsletter!

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Authored By

Michael Berger

Michael Berger is Managing Partner of StoneBridge Partners LLC. SBP continues to drive market awareness for leading firms in the cannabis industry throughout the U.S. and abroad.


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