Oct 31, 2023

Arguably, one of the greatest challenges confronting the U.S. cannabis industry is the continued pressure from a thriving illicit market. Consequently, same-store top line increases have generally been insignificant and near- term consensus revenue growth projections seem negligible. The implementation of new state markets and eventual federal legalization will lead to substantial upside (~$27B market size today to ~ $90B at maturity).

Nonetheless valuation metrics remain lower for cannabis businesses than for well established, mature industries (i.e. Big Tobacco, Alcohol and Pharma), but without effective law enforcement, a regulated cannabis market will remain inhibited, in our view.

In May, 2022 we reviewed and analyzed cannabis seizures/plant eradication statistics published by the Department of U.S. Customs and Border Protection and the U.S. Drug Enforcement Agency. This information reveals a measurable component of the illicit market and is updated to include activity for CYE 2022 and FYE Sept 30 (where applicable).

The purpose of this exercise was to determine a reasonable basis upon which we can establish a floor value of illicit sales in the U.S. and from which we can benchmark to subsequent periods.


  • Seizures at U.S. borders have decreased significantly over the past decade likely because drug cartels are unable to compete with legal state markets.
  • Conversely, there has been a heightened level of enforcement by the DEA within U.S. borders since the COVID pandemic. Demand through illicit channels remains strong as it provides a less expensive alternative for the price-sensitive consumer.
  • Individual state and local enforcement programs continue to shut down illicit activities, with California among the most significant.
  • We determined a floor value of the U.S. illicit market at ~$45B based upon 2022 federal agency activity (Customs and Border Protection and DEA); this amount excludes individual state and local enforcement programs.
  • We determined a floor value for the California illicit market of ~ $8.9B based upon statistics reported by its Department of Fish and Wildlife.

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