Adult Consumption Emerging Markets Update: September 2023

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Since January, several new adult-use cannabis programs have been launched, resulting in some of the hottest new markets across the country. Missouri reported combined medical and adult-use net sales of over $350 million in the first quarter, while Maryland, a newer entrant into the adult-use space, posted nearly $85 million in first-month sales, on par with Missouri Sales is.

As I discussed last fall, Maryland and Missouri each had cannabis-related proposals on the ballot in November, and those states were the only two to pass the proposals. Elsewhere, voters in Arkansas, North Dakota and South Dakota rejected proposals to expand cannabis use for adults. This blog addresses the current program status in Maryland and Missouri and their evolving social justice programs. I will also discuss other upcoming opportunities that the industry will see in the near future, particularly in tribal communities.

Missouri

Missouri has seen the fastest expansion of the cannabis market in recent years, taking less than three months from voter approval to launch. The voter-approved amendment laid the groundwork and provided clarity on many issues, but also made it more difficult for lawmakers to make future tweaks to the program. Regulators spent much of 2022 working on proposed adult-use rules in anticipation of voter approval, successfully preparing for an ambitious rollout schedule. The state began accepting license conversion applications just a month after the election and quickly began granting licensees permission to apply for combined medical and adult uses. The following table shows recent changes in the number of licenses. The majority of state licensees have transitioned, while additional medical cannabis licenses have been issued.

The state’s social justice program launched in the summer after applications closed. A lottery was held in August to select winners, six in each of the state’s eight congressional districts. The majority of winners selected in the lottery (32) will be able to operate wholesale micro-enterprises, granting them permission to grow up to 250 plants, process cannabis and produce cannabis products to sell to other micro-enterprises. The remaining sixteen licenses are intended for micro-enterprises and allow limited packaging and sales. It is important to note: all of these micro-business licenses are reserved for social equity, and micro-businesses are only allowed to interact with each other, creating a second, smaller “market within a market” that operates independently of the existing licensing system.

Maryland

Maryland voters approved a broader ballot question that generally legalized cannabis but left the details up to the state legislature. Lawmakers passed a package of rules and licensing requirements in early April that gave the state just a few months to prepare for the July 1 start date. In a process similar to Missouri’s, existing medical cannabis licensees were given the opportunity to apply for conversions, and no new licenses had been issued at the start of sales. Two social equity licensing rounds are permitted, the first taking place in the fall. A number of micro-enterprises will further fill out the map, creating a number of smaller craft businesses. There will be a second round of licensing after May 2024, the details of which will be clarified at a later date. The second licensing phase includes licenses for on-site consumption.

The following table shows the increased number of licenses after the expansion of social justice. The license cap will nearly double for cultivation and dispensaries and more than double for manufacturers.

Tribal

Missouri and Maryland aren’t the only regions seeing program rollouts this year – Ton the strip Cannabis sales have been increasing across the country recently. Many tribes have discussed establishing medical or adult-use cannabis programs, with varying degrees of success in implementation. Some tribes have waited for a signal from their neighboring states and have chosen to delay implementation until their neighbors legalize or finalize the legislation. Recent discussions in North Carolina suggest the Eastern Band of Cherokee Indians could be the first tribe in the region to start selling adult products. This wouldn’t be a national first – tribes in Nevada have had dispensaries for years, including the country’s first and longstanding tribal cannabis consumption lounge, while state cannabis regulators are preparing to open nearly 40 more licensed lounges.

On the East Coast, tribes have had a head start in New York, while the state is failing to roll out its retail licenses – several upstate tribes operate over two dozen retailers, a combination of tribal operations and private licensees. TILT Holdings recently made headlines when it cut ties with numerous social equity partners, including a Long Island tribe with an existing partnership to develop a vertically integrated operation and multiple retail stores. According to Green Market Report, TILT has sold its stake to PowerFund Partners.

A big potential for tribes will be the upper Midwest. Minnesota lawmakers have finally legalized cannabis after numerous attempts, but regulators have a long road ahead to licensing and implementation – potentially up to 18 months. So far, two tribes, the White Earth and Red Lake Nations, have begun selling to adults 21 and older. According to Minnesota Public Radio, the state’s 11 tribes are considering forming a tribal cannabis compact similar to the one in place in Nevada. In the meantime, Minnesota residents looking to purchase cannabis without a health insurance card may continue to turn to tribal stores, and the primary cannabis business opportunity will be on reservations. It remains to be seen whether a tribe will enter into a similar partnership with an MSO as TILT Holdings has attempted.

Summary

Overall, there will be some new opportunities for hopeful cultivation, production and dispensary applicants in the remaining months of 2023, particularly in Missouri and Maryland. Many of these businesses will be licensed and could open in the second quarter of 2024. Additional licensing opportunities will continue in both markets well into 2024, as well as in Minnesota, where tribes may develop additional programs in the coming months.

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