Halfway through 2021 - the “Green Rush” is at full throttle

Stephen Miles
July 19, 2023

A lot has happened in the last six months - the legal US cannabis map is getting greener and greener by the day.

So far this year, New York, New Mexico, Virginia, and Connecticut passed legislation approving adult use, following Arizona, Montana, New Jersey, and South Dakota’s successful 2020 ballot initiatives. Nineteen states have now legalized cannabis for adult use, spanning a geography in which close to 50% of America’s population resides. Additionally, Alabama passed medicinal legislation this year, and we anticipate neighboring southern states to follow suit.  

In short, the legal US cannabis map is getting greener and greener by the day.  

Based on the assumption that new states can turn on adult-use sales like turning on a faucet, the industry projects retail revenue of $24B for 2021, growing to $28B in 2022. Moreover, as more states legalize, cannabis is becoming more mainstream, spurring major companies like Amazon to stop testing employees for THC and adopt more relaxed postures concerning the plant. Discussions continue to advance at the federal level, and we believe Schumer’s July 15, 2021 announcement of the Cannabis Administration and Opportunity Act will accelerate negotiations that should result in some relief for the industry. All of this paints quite the rosy future for the sector.  

The capital required for infrastructure to meet the burgeoning consumer demand in mature and nascent markets alike is massive and only continues to grow. Though capital remains scarce for the vast majority of operators – and will until banking reform moves at the federal level – the top US MSOs raised substantial sums of capital in both the public and private debt and equity markets during the first half of 2021. MSOs have used this capital to fuel aggressive M&A strategies and infrastructure builds, further widening the chasm between the industry’s “haves” and “have nots.”

Moreover, the flurry of M&A activity so far this year shows no sign of abating as the market continues to consolidate, regardless of federal legalization. The blockbuster deal announcement of the year – so far – was the Trulieve/Harvest tie-up valued at $2.1B, fulfilling Trulieve’s promise to truly become an MSO.

Now, more than ever before, the top MSOs are being quite strategic with acquisitions. The market shifted from a land-grab mentality to a focus on penetrating deeper into existing geographies and/or acquiring brands and capabilities that can scale throughout the country. Acquiring smaller companies with a consumer-driven brand can be an attractive way to enter new markets, particularly mature markets like California, Colorado, and Michigan, where sales are strong but barriers to entry are high.

We anticipate a slower second half of 2021 with respect to mega M&A activity, as the majors digest recent acquisitions and fund heavy CAPEX spend for greenfield development. Debt and equity capital will become more accessible, particularly for private SSOs achieving success in more mature markets. Now is the time for smaller private MSOs and SSOs to adapt and methodically pursue discreet strategies to exponentially increase value. Shore up your finances, pick a lane and stick with it. The window is 36 months.  

Rebecca Hawkinson
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