Two Quarters In, What’s Next for U.S. Cannabis?
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Two Quarters In, What’s Next for U.S. Cannabis?

While product sales this year remain brisk, questions remain about the true viability of legislative change and the ability of legal providers to compete with legacy markets.

September 8, 2021

In August, more than a dozen of the top cannabis companies reported their earnings for the second quarter. And while product sales this year remain brisk—with states like Michigan and Illinois reaching billion-dollar industry valuations—questions remain about the true viability of legislative change and the ability of legal providers to compete with legacy markets.

Cannabis Business Times and Cannabis Dispensary spoke to several executives at prominent U.S. firms to get their thoughts on performance this year, the prospects of banking reform, social equity and the future of American cannabis after a record-setting first half of 2021.

Growth Persists Despite Legal Uncertainty

Despite an ongoing pandemic and economic uncertainty, American cannabis remains hot. Curaleaf, a leading U.S. multi-state operator (MSO) with more than 100 dispensaries across 23 states, reported a scorching 166% year-over-year increase in revenue for Q2. The company is on track to break $1 billion in sales revenue for the 2021 fiscal year. 

Leadership identified the company’s multi-state presence and focus on product quality as drivers of growth.

“Our focus on delivering high quality products that meet the needs and wants of our patients and customers is one of our biggest priorities as Curaleaf continues to scale,” said CEO Joe Bayern in an email to CBT and CD. “We are investing in new form factors based on consumer needs, including new innovations within the vape, concentrate or oral, ready-to-drink beverage and topical categories.”

Smaller firms did just as well. Arizona-based TILT Holdings saw a 33% year-over-year increase in revenue, while Illinois wholesale leader Cresco Labs broke $100 million in quarterly retail sales, a 157.6% increase year-over-year.

Revenue is projected to continue upward for the foreseeable future, with major markets like New York, New Jersey and Virginia set to establish adult-use markets in the next two to five years. In August, Cantor Fitzgerald predicted the U.S. market would reach $36 billion by 2023—an increase of over 100% from its present size.

Banking Still a Wild Card 

The prospect of cannabis banking reform remains a tantalizing one. The flagship SAFE Banking Act bill passed another full floor vote earlier in 2021, and language protecting financial institutions from punishment for working with cannabis businesses was included in a preliminary House budget passed in July.

Despite uncertain prospects, industry execs and insiders believe the passing of federal banking regulation could unlock even greater exponential growth.

“I think if the legislation was broken down into bite-sized pieces instead of one sweeping bill we would get more momentum, but as it stands, it still seems bogged down in politics,” said Gary Santo, CEO of TILT Holdings, in an email. 

Others said investor demand for access to the industry could be a catalyst for financial reform.

Andrew Thut, Chief Investment Officer at 4Front Ventures, said via phone interview that the U.S. cannabis sector was “almost a goldilocks scenario for investors.”

“You have profitable companies, well-run, at the beginning of a growth curve, that are really attractively valued,” added Thut, who spent 11 years at BlackRock and managed its Small Cap Growth Fund.

Social Equity at the Forefront  

As MSOs rake in billions, many are concerned that those affected most harshly by prohibition are being left behind. Several companies offered information about their commitment to leveling the industry and providing a fair playing field for groups targeted by biased prohibition policies.

“We are deeply committed to ensuring the future of this industry looks different than its past,” said Jason Erkes, Chief Communications Officer and spokesperson for Cresco Labs. “Through our Social Equity and Education Development (SEED) initiative we work daily to help expunge past cannabis convictions, incubate a diverse group of dispensary and cultivation applicants, and develop higher education coursework creating a future workforce.” 

For Curaleaf’s part, Bayern said the company is committed to “doing business with 420 new cannabis brands, suppliers, [and] organizations from underrepresented groups by 2025.” He added that the company wanted 10% of all 2021 hires to be individuals with cannabis-related legal offenses.

Still, the effectiveness of these policies remains in question. A wide-reaching Leafly survey from earlier this year found just 2% of cannabis businesses nationally had any Black ownership. Many equity advocates oppose standalone banking, believing it would only exacerbate existing diversity challenges. 

Others considered financial services a critical factor in leveling the industry’s playing field, allowing people from disadvantaged backgrounds much-needed access to seed funding.

“For someone coming in without a financial background or without access to pools of capital, without banking, they’re doomed from the start,” Thut added.

What Comes Next?

Legislation remains the best chance for dramatic changes to the industry. Last week marked the end of the commentary period for the Senate’s flagship Cannabis Administration & Opportunity Act. Several important organizations including the National Cannabis Industry Association (NCIA), Minority Cannabis Business Association (MCBA) and the U.S. Cannabis Council (USCC) have left public comments on the draft bill. The resulting dialogue should help advocates and legislators consolidate around a path forward for cannabis reform.

Meanwhile, legacy markets continue to thrive. Experts believe that states like California and Illinois may have legacy markets two to three times as large as their legal counterparts. Attention now turns to New Jersey, New York and Virginia, three of the 15 most populous states that have passed legalization in the last two years and are in the process of establishing adult-use industries.

And though Majority Leader Schumer has pledged repeatedly to focus on federal cannabis reform, questions remain about the viability of full legalization given the thin margins held by Democrats in the Senate and a lack of support by the Biden administration. As both chambers prepare for the upcoming budget season, banking reform might be the next major step towards a fully mature U.S. cannabis industry that becomes a $50 billion business before the decade is done.