A Pandemic Boomerang Hits Legacy Cannabis Markets

Ever since adult legalization took hold across the United States, retail trends and consumer buying habits in the cannabis industry have been something of an enigma and a moving target. When the coronavirus pandemic hit in 2020, operators buckled up for a rollercoaster ride that ended up being a boon, validating companies as “essential services,” boosting revenues, and accelerating market growth.

As the pandemic waned, however, it became apparent COVID-19 created market anomalies. Companies are still trying to sort those out as consumers return to pre-pandemic buying habits. Industry analysts at Headset recently provided some data, perspective, and insight into the new normal for cannabis markets out west. 

“From March 2020 to March 2021, legacy cannabis markets saw drastic increases in growth,” according to the analysts. “In the beginning months of the pandemic, for example, Colorado’s total adult-use sales grew by 63 percent from February to July 2020. From March 2020 to March 2021, average monthly year-over-year sales in Colorado grew 25.8 percent. In Oregon, average monthly year-over-year sales grew 36.6 percent during this same time period.”

However, when the relief checks stopped arriving and people began returning to full-time jobs, sales began to dip. By midsummer 2022, all mature markets experienced negative year-over-year growth. When the dust settled, most markets contracted to pre-pandemic levels. California’s market declined by 12 percent year over year, while Oklahoma was down 21 percent and Colorado down 17 percent.

Headset analysts also concluded:

• Sales surged during the first eighteen months of the coronavirus pandemic due to rapid changes in consumer behaviors in U.S. markets. Both basket volume and basket size increased in every market, sometimes dramatically.

• Consumer behavior readjusted once again as the pressures of the pandemic faded from day-to-day life. 

• The market is still correcting to pre-COVID growth rates, but sales should stabilize soon.

• Long-term trends still demonstrate growth across all markets, both legacy and emerging.

“If you think about the economic factors and who they might be most influential on in cannabis markets, my guess is younger people were driving a large proportion of the increased sales during COVID because of stimulus checks and unemployment benefits,” said Headset Senior Analyst Cooper Ashley. “But now, the prospect of student loans going back into repayment and other things suggest to me younger people are the ones who are spending less than they were last year.”

While consumers were buying more weed than normal during the height of the pandemic, they also were shopping less frequently, which accounts for the higher-than-normal spend per shopping trip. That trend also appears to be shifting.

“I think there was a tendency during COVID to make fewer trips, whether to the grocery store or the cannabis store, and then buy more all at once,” Ashley said. “So that’s the second piece of consumer behavior that may be changing a little bit, as people are now shopping more frequently and spending a little bit less per visit.”

Another alarming data point over the past year is the price of flower on the West Coast, which plummeted as oversupply and other factors impacted the market. The average price per gram of flour in Colorado dropped by 36 percent (from about $5 to $3.50) between the summer of 2021 and the summer of 2022; the same trend is apparent in all the legacy markets. Operators ramped up volume in order to meet increased demand during the pandemic, but now that consumers have decreased their consumption, there is a significant oversupply.

The good news is the industry remains in a healthy growth pattern, according to Headset, and long-term trends remain positive. Sales in Oregon are up 25 percent over the past three years, for example, and Washington has experienced sales growth of 17 percent over the same period. “A key takeaway is we are still in a good place even in the most mature markets, which have increased in sales over the long term,” Ashley said. “But as any market matures in the cannabis industry, it tends to grow really quickly and supply cannot meet demand. And then those two economic forces tend to meet in the middle, and growth slows down significantly.”

For East Coast operators, one lesson in all of this is to anticipate market trends based on what has occurred in more mature markets and adjust production and inventory accordingly. Of course, every market has its own dynamics, and there is no accounting for the fickle tastes and habits of consumers from location to location. “As new markets open, everybody learns from past mistakes,” Ashley said. “There are more and more multistate operators who already have done this, and the sophistication of every market seems to outpace the sophistication of the markets that came before it. So for right now, I would watch what’s going on in New Jersey and what’s been happening in Illinois, Michigan, and Arizona as models for future openings.”