Is the US cannabis industry just a house of cards? Look north to see the future of the US weed industry

What will happen to pharmacies with state legalization? – Look north, young man, look north!

Interesting piece put out by the COVA POS ordering system and LinkedIn polls over the 4/20 holidays. Highway 33 organized the data into easy-to-use infographics, and while the US market is restless and could be explained over the past year with state-by-state legalization and then the COVID pandemic, Canada is a screaming warning to the US cannabis industry about it what full federal legalization looks like after a few years.

While Canadian cannabis users have a massive illicit market as well as a massive oversupply of legally grown weed sold in dispensaries. As we talked about ad nauseum at Cannabis.net, the margin-compression game will come to America every year now, and investors, owners, managers, and everyone else had better brace themselves for lower retail prices, lower profit margins, and a larger illicit market that’s only going to get tougher to crack down, and higher taxes. When Highway 33 printed and summarized the results:

However, in 2022, total sales per store and average shopping cart size decreased slightly in both countries. This can likely be attributed to the following factors:

1. The retail cannabis markets in Canada and some old American states are reaching saturation as consumers are spoiled for choice. The number of cannabis stores in Manitoba recently exceeded Tim Hortons, and Ontario’s cannabis market has grown exponentially from just a few stores in 2020 to over a thousand in 2022.

2. During the pandemic, Americans and Canadians received plenty of stimulus checks from their governments and had excess money to spend on cannabis while confined indoors due to restrictions. As we return to some sense of normality, people are now likely to spend more money on other regular leisure activities.

3. In 2022, we will see the highest inflation in decades, which is likely another factor affecting the average basket size on 04/20/2022 in both the US and Canada.

4. People probably stocked up over the Easter weekend, which was just a few days before 420.

If you look at the first chart, the decline in margin, orders and profit of legal cannabis in Canada is breathtakingly stunning to say the least.

Well, fast forward to a second chart Highway 33 used by MJ BIZ, the profitability of MSOs in America right now. Check out the sales figures from 2020 to 2021, they look great! Now look at the fact that only 2 MSOs are actually profitable and these two need nearly a billion in revenue to turn a profit. Let that sink in, an MSO needs to start getting into the billion-dollar revenue neighborhood now to make decent profits.

This is before full federal legalization in the US, before interstate commerce kicks in, a larger illicit market emerges, and consumers have many more options for getting cannabis compared to what they have now.

They have Canada just north of us to show you what happens when you have way too much cannabis for your population. Canada has little more population than the state of California, but it’s a great pioneering experiment for the American cannabis industry. Want worse news if you’re a brick-and-mortar cannabis business? Interstate commerce will destroy walk-in retail like Amazon did with the standard US mall. What happens when international trade starts and low labor costs, low electricity costs and areas with 330 days of sunshine a year come online and start exporting cannabis? Colombian companies claim to be able to grow premium cannabis outdoors for US$1 per gram. That will decimate the margins of U.S. cannabis growers who have to comply with labor laws, electricity prices, testing, pesticide use, and so on.

If margin compression and market saturation will also be the future of the US cannabis industry, what can a company do to protect its market share and profits? As we mentioned earlier on this site, when margins are falling on the bottom line, you need to find some margin on the top line and win a customer for $0.01, not $50. This is where cannabis sites with organic traffic that can convert those eyeballs into orders will win the day. The MSO that is grabbing so much digital ownership in the cannabis industry will be able to grow those pages into millions of views per day and convert those page views into customers. Take internet traffic from the biggest cannabis websites and send them to one of your local dispensaries or ship them orders through your rewards program and online shopping cart.

Ultimately, cannabis is a commodity, and commercialization has already begun in mature rule-of-law states. The sales data show it, the customer surveys all show it too. Customers remember the price, the effect, and how far they had to go to get the product. They don’t care about your packaging, your story, or if “your weed is so much better than anything else out there”. Price, desired effect, how long did it take to get it, that’s what every consumer survey in the cannabis industry has come up with so far. Budweiser and Bud Light account for 90% of beer sales in America, not because it’s the best-tasting beer or because it has the best packaging. It’s cheap, it’s always nearby, and it gets the job or effect you want.

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