Five states legalize cannabis, growing industry by a projected $9 billion

July 19, 2023

Voters in five states broadly adopted legalization measures Tuesday, November 3, 2020. Recreational or medical use, or both, were on the ballot in Arizona, Mississippi, Montana, New Jersey, and South Dakota.

The legalization of cannabis in these additional U.S. states is estimated to grow the industry’s size by $9 billion, according to cannabis market firm New Frontier Data.

New Jersey — Question 1 | Recreational Use

New Jersey voters legalized recreational use, saying “yes” to Question 1 after the vote failed in the state legislature, which means the state’s constitution will be amended to permit those who are 21 and older to use and possess marijuana, as well as to permit marijuana to be cultivated, processed, and sold in New Jersey.

What’s the play

The adult-use ballot initiative passed with 67% of the state voting in favor – making this a landslide victory in adult-use legislation history. Adult-use legalization creates a wildly lucrative environment for existing operators who can now expand cultivation to satisfy the demand of the fifth most densely populated state in the country and the Manhattan market just across the bridge. Not to mention, the state’s 86,000 MMJ patients are projected to grow to 197,000 MMJ patients by 2022.  

Recently, New Jersey signed a law no longer requiring vertically-integrated cannabis businesses. There are 15 licenses available for stand-alone dispensaries and five licenses for stand-alone cultivators with the new law in effect. No licenses have been granted.

Building cultivation and retail with proven operators will be among the most accretive investments in the near-term future. The challenge here will be in valuation and structuring.

Arizona — Proposition 207 | Recreational Use

Voters said “yes” to Proposition 207 in Arizona supporting legalized recreational marijuana use for those 21 and older, along with a 16% excise tax on sales of the drug. Currently, the state permits only medical use and outlaws recreational use and possession.

What’s the play

In every market that transitions from medical to adult-use, the incumbent operators benefit massively. Arizona operators have a multi-year window to enjoy demand that far outstrips supply. The sooner an operator can get their operation running, the higher likelihood they can payback investors and enjoy high margins and light marketing spend. Much like New Jersey, the challenge here will be in valuation and structuring. 

Montana — I-190 & Constitutional Initiative 118 | Recreational Use

Adult recreational use was legalized under Montana’s Marijuana Legalization Initiative, orI-190, and Constitutional Initiative 118. The measures will legalize purchase and use for those 21 and older. Possession of the drug will be capped at 1 ounce or less than 8 grams of concentrate.

What’s the play

The licensure structure is broad, allowing 300 cultivators and 355 dispensaries, creating an environment that benefits consumers and challenges operators. Look for dispensary operators with strategic locations who own their supply chain. Cultivation may only be valuable if you control the retail it goes through. Look for retailers who can tap into the ski bums off Big Sky and Yellowstone adventurers profitably.  


South Dakota— Constitutional Amendment A & Measure 26 | Decriminalization & Medicinal Use

In South Dakota, voters supported Constitutional Amendment A to amend the state’s constitution to allow purchase and possession, and distribution of up to one ounce of the drug for those 21 years old and older.

Measure26 also passed, requiring the state to form a medical marijuana program for use, possession, and home cultivation of plants for people with qualifying medical conditions.

The state legislature is required to draft and pass new laws to establish a state medical marijuana program no later than April 1, 2021.

Although the license structure has not yet been established, the guidelines state the following:

1. Issue enough licenses to substantially reduce the illicit production and sale of marijuana throughout the state; and

2. Limit the number of licenses issued, if necessary, to prevent an undue concentration of licenses in any one municipality.

What’s the play

With a population of ~900,000 and adult-use legislation passed, attractive assets will be based on each municipality. It’s hard to see many scaled and profitable operations here. Look for retail with strategic moats around Bass Pro shops and the local minor league team. 

Mississippi — Ballot Measure 1, Initiative 65 & Initiative 65A | Medicinal Use

Mississippi voters asked to weigh in on legalizing marijuana for medical purposes said yes to the initiative and chose one of two medical marijuana legalization options that offered patients broader access to the drug. Mississippi will allow use for 20 medical conditions and cap quantities that patients can possess at 2.5 ounces.

Recreational use will remain illegal in the state and was not up for consideration.

What’s the play  

Although Mississippi voted for the more expansive medical cannabis regulation, it still errs on the conservative side. According to Section (i) of ballot Initiative65A, the program shall provide a limited number of state-licensed manufacturers of marijuana products. Once the Mississippi State Department of Health establishes guidelines, we will project patient population density to license ratio. Look for the casino industry to embrace these regulations as they know how to work with regulatory bodies and are established in desirable population densities.  

Rebecca Hawkinson
Stephen Miles
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