Colorado Cannabis Sales Remain Resilient in September as the Shift from “Consumer” to “Patient “Continues
The state of Colorado’s marijuana tax revenues for September implies total monthly sales of $223.9M (+2% MoM; 44% YoY) with medical marijuana revenues at $46.2M (+10% MoM; 58% YoY) and recreational use ~$177.2M (+1%MoM; 47%YoY).
We estimate that the average cardholder spend in the month ticked up to ~$548 from ~$502 in Aug ($348 Sept’19). The number of cardholders at month end increased slightly to ~84.6K from ~84.2K in Aug but up from ~80K since the pandemic hit. (NOTE: Not every registered cardholder will make purchases in any given month, in fact some states have revealed active patients at ~70-75% thus the estimated average cardholder spend per month could be understated given that the denominator in our calculation is likely lower.)
Since the COVID-19 pandemic took its hit on the economy, The US Cannabis industry has proven remarkably resilient with a surprising resurgence in Colorado, from what had been considered a mature market (6+ years since recreational use was introduced).
Earlier this year, we suggested that as the economy worsens and disposable income levels fall, some cannabis consumers would switch to the illicit market because it provides a cheaper alternative (no sales tax and other costs associated with regulation). Additionally, we asserted that, a recreational use consumer could reduce monthly spending by obtaining a medical card that enables the purchase of similar cannabis products at a significantly lower sales tax rate (~20-25%+). In most states, a medical marijuana card can generally be obtained without much difficulty depending on the qualifying condition (i.e. chronic pain which is loosely defined).
Our analysis of Colorado’s recent sales trends could suggest that our prediction for these possible shifts in consumer behavior may have come to fruition based on the following:
- The medical market rate of growth continues to expand (+3000 bps Sep YTD) which continues to outpace recreational use (+80 bps Sep YTD) a clear reversal of the trends that we have observed pre-covid where medical market growth was decelerating.
- Since the pandemic, we note an uptick in cardholder counts (+3K) coupled with a sharp increase in monthly spending. This trend could also suggest that existing cardholders are “buying low and selling high “spending more for resale into the “gray market” (purchased in the legal market, sold in the illicit market). Because cannabis is deemed an “essential business”, we don’t think that the increased level in spending is attributed to “hoarding” (though entirely possible in some markets for both recreational and medical use).
- As the bellwether for the U.S. Cannabis industry, Colorado could be an indicator of similar trends experienced in other recreational use markets. Our analysis is based upon information provided by the state of Colorado and is not derived from point of sale data. Cannabis regulations and disclosures vary by state and with a 6+ year track of regulating a dual market, we think Colorado could serve as an indicator of similar trends experienced in other U.S. bifurcated markets.
Eventually we think these trends will return to the norm with more growth to come from the recreational market. With the imminent end of federal prohibition, we recognize that this shift could prove inconsequential as the medicinal (as defined today) and recreational use markets combine into one substantially larger market (medical use will be redefined and re-calibrated with precise dosage, efficacy etc. similar to other health/wellness products).
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