If you’ve been paying attention to cannabis industry news over the past few months, you’ve probably read some alarming headlines. Sales are softening, operators are going under, layoffs are ramping up, retailers are closing doors, financing is drying up, and the list goes on. Luckily here at Headset, we can use the power of data and analytics to drive informed and evidence-based decisions to diagnose what has been happening recently.
Throughout this report, we will investigate sales trends in the US cannabis industry in recent months in comparison to sales during the COVID-19 pandemic. In the data, we find that the sales growth during the pandemic was exceptional and that the softening of demand in recent months may be a correction to a pre-pandemic normal. While this doesn’t soothe the negative impact on businesses today, the frustration or potential panic towards the current state of the industry can be redirected towards understanding long-term trends and re-stabilization of the industry.
As you read this report, remember how different life was during the beginning of the pandemic. Perhaps you were pining over a Peloton or nurturing a sourdough starter. It’s easy to forget how much has changed, but behavioral patterns have gone through whiplash over the past two years and the effects of those changes are strongly felt by operators at all levels of the cannabis industry.
When we look at legacy US markets like Colorado, Nevada, Oregon, and Washington, we find declines in year over year sales growth in recent months. For example, average monthly year over year sales in Colorado have declined by 11.4% since June 2021. These sales declines are especially dramatic when considering the extraordinary sales growth experienced during the pandemic. From March 2020 to March 2021, legacy cannabis markets saw drastic increases in growth. In the beginning months of the pandemic for example, Colorado’s total adult-use sales grew by 63% from February to July 2020. From March 2020 to March 2021, average monthly year over year sales in Colorado grew 25.8%. In Oregon, average monthly year over year sales grew 36.6% during this same time period.
While it seems that sales are currently declining in legacy US markets, compared to June 2019 (pre-COVID) we see that sales in these markets have grown. Oregon, for example, experienced a 20% decline in monthly sales over the past year. Despite this, sales in Oregon are still up 25% over the past three years. Washington has experienced an increase of 17% in sales growth over the same time period. Although the recent declines are significant, the positive growth in long term trends is an indication of a market correction.
Data for this report comes from real-time sales reporting by participating cannabis retailers via their point-of-sale systems, which are linked to Headset’s business intelligence software. Headset’s data is very reliable, as it comes digitally direct from our partner retailers. However, the potential does exist for misreporting in the instance of duplicates, incorrectly classified products, inaccurate entry of products into point-of-sale systems, or even simple human error at the point of purchase. Thus, there is a slight margin of error to consider.
Throughout this report, we will focus on legacy adult-use cannabis markets such as Colorado, Nevada, Oregon, and Washington. This is because there are far fewer net new store openings in these markets, as opposed to in emerging markets like Michigan and Illinois. Legacy markets therefore present better examples of sales patterns of more saturated and stable cannabis markets.
In this graph, we look at the monthly sales of Colorado, Nevada, Oregon, and Washington before and during the first year and a half of the COVID-19 pandemic. As we can see, cannabis sales exploded in the first six months of the pandemic. For example, Colorado’s total adult-use cannabis sales grew by a massive 63% from February to July 2020. For comparison, in 2019 sales in Colorado grew by 43% over the same time period.
Sales remained elevated compared to previous years throughout the rest of 2020, and continued to grow through the first half of 2021. In the second half of 2021 however, the relationship with the pandemic started to change in the US. This impacted all facets of our economy, including the cannabis industry.
As COVID’s impact on day-to-day lives lessened, cannabis sales growth slowed. Stimulus checks faded into a distant memory, extra unemployment benefits ended, and life started to return to “normal.”
With millions of people suddenly faced with more options in how they chose to spend their time after many months of restrictions, we began to see cannabis sales retract through the end of 2021 and the start of 2022.
On this graph, we see year over year sales growth by month for legacy US cannabis markets. There’s a surge in positive growth in Q2 2020, followed by continuous 20% to 40% year over year increases through the rest of 2020 and early 2021. These growth values were often double what had been observed in the same months of 2019. This growth through the pandemic was heavily influenced by impermanent shifts in consumer behavior and in the US economy at large.
During Q2 2021 however, year over year growth began to plummet as sales stabilized. By July, Colorado, Oregon, and Washington were experiencing negative year over year growth and Nevada and California joined soon after. This whiplash in legacy cannabis markets can be seen here and on previous graphs.
Here we look at the average monthly year over year sales growth from three different time periods: pre-COVID, peak-COVID, and the most recent year. We can see how distinctly different each of these three time periods are. Colorado, Oregon, and Washington each saw a drastic increase in monthly sales growth during the peak of the pandemic and have also been averaging year over year retractions of roughly -10% since June 2021.
While these declines are significant, let’s take a look at some longer term trends in order to gain an understanding of the bigger picture.
This graph shows monthly sales totals across legacy US cannabis markets, similar to the first few graphs of this report. There is one big difference here however: all the sales data between February 2020 and February 2022 has been removed. In other words, if all cannabis sales data disappeared for those two years, this is what would be left.
With all that data gone, you’ll notice the clear upward trend from early 2020 to early 2022. While it feels like cannabis sales have been collapsing, here we see that the market, over the long haul, has grown.
Here again we see some positivity in long-term cannabis sales trends. When comparing June 2019 (pre-COVID) to June 2022, we see that sales in every market have grown. Colorado had the softest growth (+4%) over this time period, but still grew. Oregon, despite experiencing a 20% decline in monthly sales over the past year, is still up 25% over the past three years.
While the sales declines of recent months are no doubt impacting operators in the industry, it is important to keep an eye on long-term trends. This data is evidence that the market is correcting to a pre-COVID normal, and sales should stabilize soon.
The challenges facing Colorado’s cannabis market have been a topic of discussion in the industry. From prominent retail chains closing their doors to new markets opening across state borders, the pressures facing Colorado operators are numerous. Because of this, we wanted to take a closer look at the sales trends in Colorado.
This graph shows the total basket volume and average basket size by month in Colorado over the past two and a half years. Total sales is the product of these two values (Total Sales = Total Basket Volume x Average Basket Size).
Here we see why total sales surged so quickly early in the pandemic: both basket volume and basket size shot through the roof. Basket size stayed much higher than the pre-pandemic normal through late 2020 and early 2021, while basket volume underwent the usual seasonal shifts, albeit at a higher total than ever before.
From June 2021 to June 2022, total basket volume decreased by 7% while average basket sizes have decreased by 10%. This indicates that the spend per trip is having a slightly larger effect on Colorado’s cannabis sales totals than the total number of customers walking into stores.
Here we focus on Colorado’s Flower sales and pricing trends. As the largest category in any state, Flower can be used as a leading indicator of the status of a market.
In this graph, we can see that the total volume of Flower sold in Colorado grew and peaked quickly in July 2020. Since Q4 of 2020, the total Flower volume sold in Colorado has been remarkably steady.
The equivalized (EQ) price, or the average price per gram, of Flower products has been much less steady however. Due to increased demand, the average price of Flower increased through 2020 before holding steady around $5 for nearly a full year. Since summer 2021 however, the price of Flower in Colorado has been dropping rapidly, decreasing by nearly a full third from $5.05 in July 2021 to $3.38 in June 2022. This precipitous drop is almost certainly caused by increased competition and excess supply as consumer demand retracts.
Sales have been declining in recent months, but when we look at long-term trends we find that markets have been growing. While this adds an optimistic outlook to the slow-down the industry is currently experiencing, it’s important to continue to monitor market data and keep an eye on the trends. Thankfully, Headset tools can help! Reach out for a demo to learn how you can stay informed and create data-driven solutions in the cannabis industry.
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