According to a recent Freedonia Group analysis, the US market for marijuana-growing equipment and consumables is forecast to grow over 15% annually through 2023. But the shifting legal environment can make opportunities difficult to gauge. Given the complex process of developing and enacting programs by state legislature, what seems possible today often seems less so over time, as issues are debated and compromises are made. Last year, for example, Virginia seemed a promising candidate to legalize marijuana markets in 2020, but recently decided to go with decriminalization reforms instead, which only reduce penalties for marijuana possession and use.
In addition to legalization versus decriminalization, laws apply to two uses – medical, which has more restrictive conditions to access, and recreational (or adult-use), which generally requires marijuana market participants simply be of adult age.
Cannabis Growing Market in the US from The Freedonia Group’s series of cannabis market studies features detailed analysis of cannabis laws nationally and by state, including the scope of allowable activities for growers and sellers, licensing requirements, and other factors governing market opportunities throughout the US.
Following are five important considerations for suppliers of growing equipment and consumables as they explore entry into legal marijuana markets.
1. Legalization vs. Decriminalization: Opportunity Resides in Legalization
Legalization and decriminalization often get conflated, but the differences between them are stark. When you hear about states decriminalizing marijuana, this usually refers to reducing penalties for possession and use. In other words, decriminalization reforms do not create a regulatory framework under which legal production and sales operations can be established, meaning that marijuana businesses remain illegal, and opportunities to supply legal marijuana growing operations do not exist.
Currently, 11 states and the District of Columbia have legal recreational marijuana programs, while 33 states and D.C. have legal medical marijuana programs, and more states are expected to legalize marijuana in 2020. Generally, legalization establishes a regulatory framework for the development of marijuana markets (i.e., production, distribution, and sales) in addition to rules for possession and use.
As such, the strongest opportunities for growing suppliers are in legal marijuana states, where production and sales are permitted, and licensed growing operations (which are most often located indoors) require use of high-value equipment and consumables, both to comply with regulations and to meet consumer expectations for potency and quality.
2. Scale of State Marijuana Production Influenced by Legal Scope of Retail Markets
The scope of legal activities involving marijuana vary from state to state; for example, Vermont legalized recreational marijuana growing and consumption years ago, but is still in the process of legalizing retail sales. As dispensaries are consumers’ only legal access point to marijuana, the allowable number and activities of state-licensed retailers influences the scale of marijuana production and, by extension, demand for related growing supplies.
Hence, the best opportunities are in states with highly developed retail markets, such as California and Colorado, where access is easy and a large number of licensed dispensaries are allowed to operate. Going forward, states where recreational retail markets are just beginning to take shape – like Illinois and Michigan – will create additional opportunities.
3. Medical Marijuana Market Opportunities Narrow Outside of Recreational States
In every state that’s legalized recreational marijuana, a narrower medical-use program came first, with access to certain forms of cannabis restricted to patients with select medical conditions and a prescription from a licensed physician. In states that permit only medical marijuana, growing operations are tightly controlled, in terms of both how they are run and how many. Some are permitted to operate only as part of a vertically integrated production and sales enterprise – resulting in limited legal access and thus limited legal sales. Some states may only allow a handful of growers and dispensaries to operate at all.
Though two-thirds of states have passed laws allowing some access to medical marijuana, it is important to research the laws governing each state’s program. For example:
- In 2018, California – the US’ largest cannabis growing supplies market – unified the regulatory structures of its medical and recreational programs. Among other reforms, it freed medical growers to supply recreational dispensaries as well and thus creating expansion opportunities.
- Louisiana’s medical marijuana law allows only one university-run cultivation facility for the entire state.
- Indiana’s medical cannabis program – one of the most restrictive in the US – permits only low-THC, high-CBD oil for patients with select forms of epilepsy.
4. Home-Growing Supplies Sales Represent Minor Share of Market
The private-use residential marijuana growing market is a sliver of the total US market – less than 2% in 2019. Nevertheless, opportunities exist for growing equipment and consumables suppliers to reach consumers, as this market segment is forecast to reach $159 million in 2023:
- Unlike in the commercial market, consumables account for the majority of growing supplies sales among private individual growers.
- Most equipment can be reused for years, while seeds, growing media, fertilizers, and other consumables are continuously purchased, often following each harvest.
However, the size of home growing operations is typically limited by state regulations to a handful of plants that can be cultivated using less sophisticated methods. Furthermore, home growers do not face the same requirements for security and product quality testing as commercial producers, so they are less likely to invest in higher-value equipment.
5. Prospect of Nationwide Legalization Brightens, But Canada Offers Caveat
Increasingly, it looks like legal marijuana could become a reality in the US, and soon. Polling shows that more people support legalization than ever, and frontrunners in the 2020 race for the Democratic presidential nomination are strongly advocating for it. In addition, the legal gray area introduced by the 2018 Farm Bill’s definition of hemp (i.e., cannabis containing less than 0.3% THC is legal under federal law) versus marijuana (i.e., cannabis containing more than 0.3% THC is not) could render many marijuana laws unenforceable.
The shift in public and political opinion around the possibility of marijuana legalization bodes well for suppliers of growing equipment and consumables, as a legal nationwide program could lead to the establishment of numerous commercial marijuana growing operations and accessible, comprehensive retail markets.
However, looking northward to Canada – which legalized recreational marijuana production, sale, and use nationwide in 2018 – lessons can be learned from the growing pains seen in legal markets that have begun to form there. For example, in cannabis-friendly cities like Vancouver – where marijuana has been legal for years – the 2018 Cannabis Act invalidated dozens of cannabis businesses that had previously been city-licensed, yet many of these businesses continue to operate.
Freedonia’s Cannabis Growing Market in Canada study enumerates the barriers to marijuana market growth in Canada, which largely derive from legal factors at the provincial level that end up bolstering black and gray markets. These include:
- bans on private retail markets (e.g., Québec, New Brunswick)
- centralizing wholesale distribution (e.g., Alberta, British Columbia, Ontario)
- limits on the number of retail licenses that can be issued (e.g., Manitoba, Saskatchewan)
- local governments that act to ban or restrict cannabis business activities, such as regulating where products can be used and whether retailers can operate
About the Author:
Peter Kusnic is a Content Writer with The Freedonia Group, where he researches and writes studies focused on an array of industries.