Several of the largest cannabis players have released their most recent earnings reports, but it will be the coming weeks that the onslaught really begins. Unluckily, according to one analyst, there will not be any meaningful sales growth sequentially in the fourth quarter.
Pablo Zuanic of Zuanic & Associates recently looked at state cannabis sales reports year-over-year and noted that most reported that sales declined or were flat. New Jersey, and Pennsylvania are notable exceptions. Zuanic stated that sequential growth had slowed in even new adult use markets, such as Connecticut and Maryland.
What is going on?
Zuanic believes that price deflation has been the primary culprit. Headset’s and Cannabis Benchmarks data showed that retail prices and wholesale prices had fallen in the majority of markets since last year.
For example, in Illinois, retail prices dropped 9% year-over-year and 4% quarter-over-quarter. Florida was the most affected, as prices fell 27% during the fourth quarter of 2024, 21% during the third quarter and 6% during the second. The state’s first quarter was relatively stable.
Zuanic found some bright spots in an otherwise gloomy industry. Illinois, Maryland and Pennsylvania are still attractive states with limited licenses.
Adapting
Many operators of multistate companies are also making changes to adapt to the new conditions.
We are witnessing vertical operators allocation more product into their own store to protect margins. Zuanic noted that all of this is happening in an environment where companies continue to seek ways to lower costs.
He pointed out, too, that MariMed is adding new stores to Maryland and Illinois in order to increase the top-line of their company. Vext and Jushi have taken a similar approach in Ohio.
Zuanic thinks that MSOs may continue with balance sheet restructuring. This could have an impact on the dilution of equity investors. Investors likely will be looking at debt levels for companies – and become particularly sensitive to IRS debt levels. Many companies have avoided these taxes, hoping that there would be relief under 280e. However, this has resulted in large IRS debts.
Pennsylvania’s Promise
Hope appears to play a large part in the game plan for 2025. Hopes for rescheduling and for legislation in the banking sector are also present. Pennsylvania is the most promising market for MSOs, even though it may smell like hope. The medical market is backed by the governor. Josh Shapiro to legalize adult-use cannabis – despite previous efforts falling short.
Sales in 2024 will reach $457 millions in the fourth quarter, an increase of 17% compared to the previous year. This follows a growth rate between 11 and 12% in the first 3 quarters. Growth was likely fueled by a combination of fewer restrictions on purchases, increased stores and more assortments.
Zuanic said: “We estimate Pennsylvanians buy $344 in product per month. That’s well over the $200 average that we find on matured markets.” The state is also experiencing price deflation, though not to the same level as other states – and the data indicates that that downward trend could be stabilizing.
Zuanic stated that Trulieve, Curaleaf, Green Thumb and Jushi are the biggest MSOs based on the number medical shops in Pennsylvania. Acreage Holdings (also known as MSOs), Ascend Wellness (also known as Ayr Wellness), The Cannabist Co. Cresco Laboratories TerrAscend Holdings were also active MSOs. They may be best placed to reap the benefits of legalization in Pennsylvania.