Rising High: Exclusive talk with cannabis market research firm BDSA

BDSA CEO talks five-year cannabis forecast, challenges, opportunities and more

In this edition of "Rising High," The Fly conducted an exclusive interview with Roy Bingham, chief executive officer of BDSA, a Colorado-based cannabis market research and data analytics firm. Here are some highlights:

2023 U.S. GROWTH: BDSA released its first quarterly key market update in June, which found the legal United States cannabis market is expected to grow 12% by the end of 2023, reaching $29.6B. “Obviously, there is still a strong consumer appetite,” Bingham said. “But the big thing driving that growth is state-by-state legalization, especially for adult-use.” He noted the leading drivers of cannabis industry growth in the U.S. over the next five years will be thriving Midwest and East Coast markets. “There are important states that will be particularly effective like Missouri, New York and New Jersey to contribute a lot to the growth at the national level,” the CEO said.

2027 U.S. GROWTH: BDSA also forecast the legal U.S. cannabis market to deliver $45B in total legal sales in 2027. “It’s really a continuation of the growth patterns that we’ve seen in the past as well as the continuation of 2023’s growth,” Bingham said. “It is those newer states and adult-use going into those newer states over that five period.” He pointed to New York and New Jersey, both two new adult-use states, that are expected to add over $1B in revenue over that time period.  “There are other states like Florida and California that aren’t going to grow as rapidly,” the CEO said. “But they’re already very large and their base is expanding, so again more than $1B in sales are being added by those states." He said there are also some large states in the growth phase currently like Michigan and Pennsylvania, which will help drive the increase.  “You add that all up over five years and we’re going to add 50% more to the size of the industry,” Bingham said.

GLOBAL GROWTH: The firm also found that the total global legal cannabis industry is predicted to reach $36.7B in 2023, growing at a compound annual growth rate of 13% from 2022 to 2027. When asked about the key factors in international growth, the CEO cited Canada as the leading driver. “Canada is now a maturing market, but it is a sizeable market,” he said. “The next hope or expectation was Germany, but Germany has slowed down its development.”

Other European markets have been growing, Bingham said, however they are not currently implementing adult-use and therefore will not see that inflection point growth any time soon. “We do expect Mexico and a couple of Latin American countries as well to contribute to the global picture,” he said. “But it’s not as exciting as it might have been outside of North America. North America is very much the lead in global markets.”

EMERGING ADULT-USE: In the update, BDSA said emerging adult-use states are expected to drive U.S. growth over the five-year time period. The company noted Missouri legal cannabis sales are forecasted to reach $1.4B in 2023, driven by a strong start to adult-use sales. “Missouri has had very rapid growth, a very efficient licensing process and a lot of retailers that stood up very quickly,” the CEO said. “It’s a fairly large state in terms of population, about 6M people, and it’s got lots of near neighbors that are not licensed and regulated states." He pointed to Arkansas, Tennessee, Mississippi, Oklahoma, Nebraska and Illinois as neighboring states that could benefit the Missouri market. “There’s a lot of volume potential in Missouri and it’s been seized by a rapid start and large base,” Bingham said.

BDSA also projected New York legal cannabis sales to grow to a total of $631M by the end of 2023 and $2.5B by 2027, experiencing a CAGR of 71% between 2023 to 2027. “The opposite scenario of Missouri in a way is New York,” the CEO said. “It has massive potential, 20M people, but it’s off to a very slow start with adult-use.” He said only one dispensary opened in the state before the end of 2022 and only a handful are open now as regulatory activity has caused some delays. “It’s been a relatively slow rollout, but you can’t help but expect that over this five-year time horizon, the New York market is going to be a very large market,” Bingham said.

NEW MARKETS TO WATCH: BDSA also noted Minnesota, Maryland, Delaware and Florida as new markets to watch from 2023 to 2027. Minnesota adult-use sales are expected to begin in 2024 and total $177M for the year.  The company predicts total sales to grow at a CAGR of 68% from 2023 to 2027, totaling $875M in 2027. Additionally, Maryland and Delaware are set to launch adult-use sales in July 2023 and late 2024, respectively.

“All of these states have just had new legislative changes,” the CEO said. “You’ve got Minnesota which signed new legislation only at the end of May and they expect to have adult-use in the beginning of 2024. For Maryland adult-use, which we expect to start in July, there will be new licenses and therefore more locations coming on. And Delaware just approved adult-use.”

BDSA also said adult-use sales are expected to begin in Florida in 2025 despite legal challenges and reach $4.3B by 2027. “Florida was big already as a medical market,” Bingham said. “There’s going to be an adult-use decision later this year. We’re not sure when and therefore what the result will be of that, but the medical market alone is going to grow very substantially over this time horizon.”

MIDWEST MARKET GROWTH: The firm also said in the update that Midwest cannabis markets are poised for future growth. In Illinois, total spending is forecast to grow by 8.3% to more than $2B this year as the state begins to roll out new licenses. BDSA also found, despite declining prices, Michigan is forecast to grow 19% in total sales by the end of 2023 and to top $3.5B in 2027.

“Those are two states with very large populations that are relatively underpenetrated in terms of numbers of dispensaries,” the CEO said.  “The more dispensaries that are being rolled out, the greater the access for consumers outside of the big urban areas. Michigan has a population of 10M, so when we look at the penetration relative to much smaller mature states like Colorado, we have to conclude that there is no reason why we won’t see considerable growth for a long time to come.”

SALES DECLINES: BDSA said that despite sales declines, mature states will still account for a substantial portion of legal sales through 2027. The firm noted California continues to be impacted by price compression and illicit competition, which led to annual legal sales declining for the first time in 2022. Based on slow sales in Q1, BDSA forecasts California sales will decline by 9% in 2023, totaling $4.8M.

“We expect slow growth just on the order of a couple of percent compounding year by year by year for California, Arizona, and Nevada and almost no growth for Colorado unfortunately,” Bingham said. “They all have large bases and even growing at only a couple of percent over five years, you’re talking about adding substantial amounts to the total national picture.”

BDSA added Pennsylvania is also expected to see a slight decline in cannabis spending in 2023, with total legal sales forecast to be just over $1B this year. “It declined for the first time last year, even though there was strong patient growth,” the CEO said. “But there were slow sales in the first quarter of this year, so we are expecting to see another decline in 2023.”

LEGALIZATION: When asked about expectations on federal cannabis reform, Bingham said he does not expect federal legalization to have a massive impact on the five-year time horizon. “If anything, it would increase our projections,” he said. “When we’re talking about the vast majority of the population already having access to medical or adult-use cannabis, the marginal effects of federal legalization on total consumer sales are not that big.” However, the CEO said legalization would have other substantial impacts in terms of industry structure, access to capital and marketing and sales changes. 

SAFE BANKING: In April, Oregon’s U.S. Senator Jeff Merkley along with Montana’s U.S. Senator Steve Daines introduced the bipartisan Secure and Fair Enforcement Banking Act of 2023, which looks to ensure that legal cannabis businesses have access to critical banking and financial services. “I don’t know how it will play out,” Bingham said.  “I’ve heard a lot of optimism, but I have heard that before. Maybe there is a little bit more grounds for optimism this time than what was the case previously.” He added if passed, the Act will significantly improve the ability of companies to operate inside the industry and give them better, more reliable capital access and banking capabilities. “It will just improve positions in the industry dramatically,” the CEO said. “It will also have a substantial effect on financial investors. It should make it possible for those people to invest directly into the industry who’ve been sitting on the wings for a long time. That will free up a substantial flow of capital.”

CHALLENGES: When asked about the largest hurdles facing the cannabis space, Bingham pointed to the regulatory environment and black market competition as two of the biggest challenges within the industry. “Competition from illicit markets is in many states, not just mature markets like California, where there is a very large illicit market that competes directly with the licensed dispensaries,” he said. “For example, somewhere like New York State, there are hundreds of operators who are unlicensed.”

The CEO said the illegal market creates all kinds of stresses and strains on the licensed industry. “It is causing prices to fall and when prices fall, profitability gets squeezed and margins are tighter,” he said. “It’s more difficult for businesses to break even or generate cash flow.”

OPPORTUNITIES: As the cannabis sector develops, Bingham said the biggest opportunities for companies in the space are in positioning for rapid growth markets. “Most companies have been working hard at that over the last two or three years,” he said. “Being ready for the inflection point that takes place when adult-use happens is the primary opportunity.”

The CEO also said he sees opportunities for companies to improve products in the near-term for better reliability in terms of effects.  “Maybe in the next couple of years brand recognition will emerge as well, for brands that are in 10 to 15 states and are becoming almost household names,” he said. “Obviously making great products that give people predictable effects and a consistent experience is the starting point.”

For those interested in the industry, Bingham said he highly encourages people to check out the BDSA website for relevant publications and webinars on a frequent basis. “It’s important to stay up to date in such a fast-moving environment,” he said. “Accurate, useful data that is delivered in a timely fashion is very valuable to anyone who is in this business.”

CANNABIS/PSYCHEDELIC STOCKS: Publicly-traded companies in the space include Aleafia Health (ALEAF), Acreage (ACRHF), Atai Life Science (ATAI), Audacious (AUSAF), Aurora Cannabis (ACB), Avant Brands (AVTBF), Awakn Life Sciences (AWKNF), Ayr Wellness (AYRWF), Body and Mind (BMMJ), BZAM (BZAMF), Cannara Biotech (LOVFF), Canopy Growth (CGC), Chicago Atlantic (REFI), Clever Leaves (CLVR), CordovaCann (LVRLF), Cresco Labs (CRLBF), Cronos Group (CRON), Columbia Care (CCHWF), Compass Pathways (CMPS), Curaleaf (CURLF), CURE Pharmaceutical (CURR), CV Sciences (CVSI), Cybin (CYBN), Delic Holdings (DELCF), Delta 9 (DLTNF), Entourage Health (ETRGF), Fire & Flower (FFLWF), Flora Growth (FLGC), General Cannabis (CANN), Greenlane (GNLN), Green Thumb (GTBIF), GrowGeneration (GRWG), Goodness Growth (GDNSF), Hemp (HEMP), HEXO (HEXO), High Tide (HITI), India Globalization Capital (IGC),  Indiva (NDVAF), Innovative Industrial Properties (IIPR), InterCure (INCR), IM Cannabis (IMCC), Wellbeing Digital (KONEF), Khiron Life Sciences (KHRNF), Lowell Farms (LOWLF), Lotus Ventures (LTTSF), MediPharm Labs (MEDIF), MedMen (MMNFF), NewLake Capital (NLCP) Organigram (OGI), Planet 13 (PLNHF), Reunion Neuroscience (REUN),  Revitalist (RVLWF), RIV Capital (CNPOF), Relmada (RLMD), RYAH Group (RYAHF), Safe Harbor (SHFS), Small Pharma (DMTTF), SNDL (SNDL), Sproutly (SRUTF), Skye Biosciences (SKYE), Stem Holdings (STMH), Sunniva (SNNVF), TerrAscend (TRSSF), Tetra Bio-Pharma (TBPMF), Tilray (TLRY), Trulieve (TCNNF), Tryp Therapeutics (TRYPF), Verano (VRNOF), Village Farms (VFF), Wesana Health (WSNAF), Zynerba (ZYNE) and 4Front Ventures (FFNTF).

Keywords: cannabis, weed, stocks, marijuana, cultivation, legalization, CBD, THC, hemp, psychedelics, ketamine, psilocybin, LSD, MDMA