The cannabis market is changing fast. With legalization on the rise and possible reforms pending, 2021 and 2022 are poised to be game changers for the industry. In 2020, the global legal marijuana market was valued at $9.1 billion. That number is expected to grow fast in the coming years, with experts predicting a compound annual growth rate (CAGR) of 26.1% from 2021 to 2028.
With the industry poised to grow, it is important to be aware of the most significant changes on the horizon. Below, we will go over four trends likely to dominate the market in 2021.
Cannabis Banking Reform
During the 2020 campaign, President Joe Biden promised to both decriminalize marijuana on a federal level and reschedule the drug from Schedule 1 to Schedule 2. While this does not translate to federal legalization of marijuana, it removes a lot of current restrictions and penalties. If such legislation is passed, the possibilities for the industry at large could be massive as a lot of red tape and restrictions would suddenly disappear.
This is only one bit of potentially good news in terms of legal reforms, however. The Democrat-led House of Representatives has previously introduced legislation regarding cannabis banking reform. If passed, this would allow banks and credit unions to provide the same basic financial services to marijuana companies as they would to any other business, allowing many smaller companies the financial resources necessary to grow their businesses.
While there has been little forward momentum on the proposed reforms so far, this is something to keep an eye on in 2021. Cannabis banking reform and/or the decriminalization of marijuana on a federal level could have massive implications for the industry and be a catalyst for unprecedented growth in the recreational-use segment.
Even if we do not see changes on the federal level in the coming years, three states could potentially legalize marijuana in the near future: New York, Connecticut, and Virginia.
New York came close to legalizing marijuana in 2020, but efforts were curtailed due to the COVID-19 pandemic, but the resulting budget gaps may make legalization more likely in 2021. Virginia Governor Ralph Northam already released a comprehensive plan to legalize adult use of marijuana and the November 2020 election widened the margin of Democratic control in the Connecticut House and Senate.
While the impact of increased state legalization would not be on par with federal decriminalization and banking reform, it is worth keeping in mind. New markets could be opening up across the United States very soon.
The Push To Profitability
The majority of North American pot stocks have yet to achieve recurring profitability, but this is expected to change relatively soon. The largest publicly traded multistate operators (MSOs) are expected to begin to show recurring profitability in 2021, including major players like Green Thumb Industries, Cresco Labs, and Planet 13 Holdings.
Planet 13 is notable in that – as opposed to other MSOs, which expand into a multitude of states – it only has a single location opened near Las Vegas. However, it is opening a second location in Santa Ana, CA in 2021, meaning the company will likely see considerable growth.
Canadian marijuana stocks will become profitable in the coming years as well, but it may take slightly longer.
Ongoing North American Shakeout
While the industry is growing, we will inevitably see some closures as major players begin to emerge and smaller companies are unable to keep up. In fact, we have already seen some examples of this.
The Canadian company, Tilray, merged with the larger company Aphria in December of 2020 in order to stay afloat financially. The merger had a negative impact on Aurora Cannabis, which had been competing for a partnership with Aphria due to their own money issues. Now, industry experts are predicting Aurora will close down in the near future.
As the industry continues to grow, we will likely see more instances of smaller companies merging with larger companies or shutting down entirely. This is a trend worth being aware of – especially if you are a smaller company yourself. Be proactive about managing cash flow and growing your customer base to stay in the business.
The Bottom Line
While the cannabis industry is getting more competitive, this is only because it is getting larger and more lucrative. With potentially major legal changes on the horizon, it is safe to say there has never been a better time to be in the industry.