The State of the Legal Marijuana Markets 3rd Edition was written based on original research, reporting and analysis by ArcView Market Research (AMR) to provide market data and financial analysis of the U.S. medical marijuana markets and the adult use marijuana markets in the states of Colorado and Washington. This analysis estimates the size of marijuana markets, market growth and market saturation in the U.S. based upon publicly available data, expert interviews and surveys of market participants. Estimating market size in marijuana markets is difficult, however, due to the nascent stages of market development, lack of publicly available data and confidentiality of individual business owners’ data. In most states, tax and sales records of marijuana markets are not recorded separately or not reported.
In order to acquire the most current information on the performance of existing marijuana markets and growth over time, AMR conducted an industry-wide survey of active market participants from June 2013 to October 2013 and August 2014 to November 2014. This survey focused largely on marijuana dispensaries in key states, but also included ancillary business operators and independent cultivators. AMR identified medical marijuana dispensaries in states with medical marijuana laws based on public and proprietary listings. A survey and informational packet was sent to these companies and AMR followed up with voice verification of operational status and interviews with business owners/proprietors. Over the course of the research, more than 2000 surveys were sent out both electronically and through U.S. mail and AMR Research collected 411 complete and partial responses. The survey results provided data regarding the number of operational dispensaries in each state, average customer numbers, purchase size, price points and volumes for each state. AMR used this data to model preliminary estimates of market size in each state.
While AMR attempted to complete as many participant interviews as possible, data acquired through participant interviews may or may not be representative of the full universe of operational dispensaries in each state. To overcome data limitations and further inform its market size estimates, AMR compiled relevant information from state agencies, nonprofit organizations and private companies in the marijuana industry. AMR entered into agreements with multiple businesses in the marijuana markets in order to acquire financial and operational data to inform assumptions on volume, sales, prices, cost structures and investment activity. AMR used this data to adjust its estimates of market size in each state, as it deemed necessary.
AMR’s estimate of the size of marijuana markets also includes both retail and wholesale sales. Estimates of wholesale sales were developed using wholesale pricing and gross margin data. Some of this data was supplied by survey participants and individual companies under confidentiality agreements. Wholesale sales are largely affected by specific provisions in state marijuana regulations. For example, Colorado used to require that retailers grow 70% of the product they sell at their dispensaries. Such provisions reduce wholesale market activity. AMR adjusted the wholesale market sizes to reflect the role that wholesale markets play in each state.
The analysis also provides a market projection (AMR’s best estimate of the size of the marijuana market in 2015 and 2016 based upon growth in existing and new markets) and an estimate of market potential (AMR’s best estimate of maximum potential market size if new states pass medical or adult use marijuana regulations in the future). In estimating the market size for 2015 and 2016 in existing and new medical marijuana and new and existing adult use markets AMR analyzed the relationships between policy implementation, patient access and market performance. AMR considered the potential customer populations (percentage of general population with a qualifying condition) in these states and also potential saturation rates (percentage of this population that would likely use legal cannabis). Much of the data used in the estimates of market projections and potential market size was produced by extrapolating the best available epidemiological data. Extrapolated data carries certain limitations and potentially large margins of error. Some of the extrapolated data for this report utilized national incidence and prevalence rates adjusted for statewide population figures.
AMR created individual models for each state based on its 2014 market size or if a 2014 estimate was not available, then size was based on a comparable market. These models were informed by data collected through AMR’s 2013/2014 surveys, proprietary data collected by AMR in 2011 and 2013 and historic data from government sources. In each state, AMR conducted a detailed analysis of policy implementation and adjusted retail activity and consumer adoption based on the regulatory hurdles and implementation timelines. In many new markets, retails sales are assumed to only be occurring for a fraction of the year.
To project adult use marijuana sales in 2016, AMR took into account three drivers of demand: current illicit market use that may transition to the legal adult use market, new adult users who were not illicit market consumers and out-of-state consumers (tourist demand). After aggregating the total potential demand in the adult use market, AMR adjusted the total by subtracting the demand being met by the existing medical markets. Not all illicit demand will move to the legal adult use market in year one. AMR’s model makes adjustments to factor in increased taxes’ effect on price, operational limitation on cultivations meeting demand, geographical constraints driven by local ordinances and regulatory limits on implementation. While it is difficult to accurately estimate each of these demand drivers because of severe data limitations, AMR believes that our working knowledge of the existing marijuana markets and access to proprietary business intelligence positions us to provide the most accurate estimate available.
AMR’s estimate of five year potential market size assumes the passage of medical marijuana and adult use policy in additional states through legislation and ballot initiatives. The market potential is the high end estimate for growth by the end of 2019. AMR consulted with the best and most experienced political and policy experts and utilized the latest polling data. AMR assumes only four additional states will establish medical marijuana markets, Minnesota and Vermont in 2015 and Pennsylvania and Florida in 2017. AMR assumes 14 more states will legalize adult use. In 2016, AMR assumes that Alaska and Oregon will establish adult use markets. In 2017, AMR assumes that Rhode Island, New Hampshire and Vermont will follow suit. AMR’s model assumes that Maryland, Hawaii, Maine, Missouri, Massachusetts, Nevada, Arizona and California will legalize in 2016 and open markets in 2018. As described above, AMR then considered the potential impacts of policy implementation on the universe of potential customers. Based on our detailed models of existing adult use markets, AMR derived market potential estimates for 2018 based on the maturity of the markets and size of the states. Finally, saturation rate estimates and assumptions regarding retail sales were applied to estimate a potential market size.
AMR’s projected retails sales for full marijuana legalization across the U.S., is an extrapolation based on the existing medical and adult use markets in Colorado. AMR used its market potential projection for Colorado to set a baseline for current market saturation. AMR then scaled up retails sales to reach an assumed level of maximum saturation (80%) realizing that caregivers, home growers and the black-market would continue to satisfy some level of demand. Then by backing out our estimate of out-of-state sales from the Colorado sales to reflect that any sales from tourism would be consequently removing dollar spent in another state, AMR establishes a marijuana sales per capita. AMR then extrapolated those sales to the rest of the country, balancing for higher use rates in Colorado and a moderate impact of new users nationwide. AMR model takes into account long-term lower prices but does not balance for the elasticity of demand.