While the cannabis industry always moves fast, recently some have been noticing a little bit of a market slowdown. In order to understand potential causes for these market fluctuations, we examine sales growth across legacy adult-use cannabis markets (CA, CO, NV, OR, & WA) in the US throughout this report. These markets have had legal adult-use cannabis sales since 2018 and make up the majority of adult-use sales in the US today. Growth through 2020 in all markets was substantial as the pandemic triggered lockdowns and stimulus checks that created both increased demand and increased disposable income. Sales growth of adult-use cannabis soared in 2020 with many markets achieving 30%+ year over year growth. This sales growth has waned throughout the summer and fall of 2021, as consumers return to the workplace and re-engage in in-person activities like dining, travel, and entertainment. With cannabis consumption prohibited in most of the venues that house these activities (hotels, bars, concert halls, air travel, etc.), this has lead to decreased cannabis consumption.
This report examines the decrease in consumer purchasing in cannabis by comparing pre-pandemic sales to sales in 2020 and 2021. We find that sales are slowing in legacy markets, but argue that sales are simply returning to pre-pandemic levels. The remarkable growth that was seen in 2020 was unlikely to be sustained because it was achieved under the unusual circumstances of a global pandemic. Sales in 2020 should be treated as an anomaly and properly adjusted when used both for forecasting the future and measuring present growth to avoid the base problem. We examine like-store sales trends both week over week and baselined at a pre-pandemic level. We do not analyze year over year trends for this reason.
We present support for our hypothesis that the COVID pandemic led to increased consumption in the cannabis enthusiast segment, which has decreased as society has returned to more in-person activities. We believe this has nearly stabilized back to a pre-COVID levels and we do not anticipate the falling sales trend to sustain. We expect sales will rebound as we enter spring 2022.
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.
This report primarily relies on median like-store sales growth for analysis. We choose the median (rather than the average), as it is less likely to be influenced by outliers. We choose like-store sales growth (rather than total market), as we wanted to isolate the effects felt by a typical retailer rather than the total market effect. Markets grow both through like-store sales growth and the opening of new stores. This report isolates the effects to previously opened retailers. However, many of the graphs and charts will compare week over week growth and as such, require a store only be open a week in order to influence the trends. We believe this is the best way to understand the individual growth trends.
In this graph, we review the week over week like-store sales growth in Colorado. In the early pandemic, we see wild swings in week over week growth due mainly to COVID-related shutdowns and panicked buying. Most CPG products were similarly impacted as consumers rushed to fill their pantries during the last weeks of March and into early April in 2020. Also notable on this chart are the weeks which contained stimulus payments in the US, all of which align with a week of increased sales. We also see increased sales around transitional holidays like Labor Day and Memorial Day. Sales during the week of 4/20 do not look very remarkable. This is mostly due to increased purchasing leading up to 4/20 and depressed sales in the days following 4/20, which is common.
Here we examine all five legacy adult-use markets on the same graph. While there are some differences in individual localities (such as Nevada, which saw slightly more depressed demand in summer 2020 due to lagging tourism), we generally find trends in Colorado on par with those in other markets. Most markets saw notable week over week increased sales throughout 2020 and into early 2021, which slowed through the summer and fall of 2021.
For another view of the same data, we isolate sales in California. This data is the same as in the prior graph, but in a different format. Here we look at week over week median like-store sales growth and compare 2020 to 2021. As sales growth tends to vary considerably from week to week, we have taken the average in each quarter and presented it above so that we can more easily compare the trends in the two years. While Q1 trends appear relatively similar, Q2 2021 was missing notable sales increases we saw in 2020. Q3 and Q4 were both slightly negative in 2021 compared to slightly positive and flat in 2020.
As you interpret the data on this graph, recall that the numbers presented are week over week growth and as such, are compound throughout the quarter. If, for example, a quarter saw +1% week over week growth, on average we would expect that quarter to end at +12.7% from where it began, (1+r)^t.
Following the data from the prior graph, we break down the changes in sales into their components. Total sales is composed of two pieces: unit volume and average prices. Using the logic from before, where we compare the average quarterly trend for median like-store sales growth, we can further our understanding of the drivers of growth. During the early pandemic, we saw strong increases in unit volume along side a slight elevation in prices. In more recent quarters we find flat, or shrinking unit volume, coupled with decreased prices driving total sales down. We can see decreases in prices trailed stagnant unit volume and surmise that as unit volumes began to fall, stores began reducing prices to increase their competitive standing and attempt to attract more demand.
Falling prices are common in all markets, and all five legacy markets are observing prices below their pandemic levels. In some markets, like NV, OR, and WA, we find that prices still remain above their pre-pandemic levels. In other markets, like CO and CA we find prices sitting well below their pre-pandemic levels. We believe this is a factor of competition. CA and CO have enjoyed considerable interest from investors with many new products and brands entering their markets. In both markets we have seen investment interest in retailer acquisition by major MSO's. In CA we see continued issuance of licenses increasing the competitive pressure on retailers. Both markets continue to see conversion of medical-only licenses into combined medial and adult-use, which further increases retail competition.
In this graph, we examine the average retail discount and find that discounts are generally trending up in Colorado in recent months. California saw an increase in discounting through the latter half of 2020, which has fallen through the fall in 2021 but increased again in recent months. Discounting is also growing in other markets, with average discounts in Nevada up to 14.9% (Nov 2021), up from 9% (Jan 2020), and in Oregon where discounts went from 9.5% to 13.6%. Newer markets are also facing increased price competition resulting in higher discounts. Michigan, for example, now sees average discounts above 20% (up from 9.3%) and consumers in Illinois are enjoying average discounts of 12.2% (up from 2.8%).
In this graph, we take a look at the California market and examine consumer sales to further clarify the drivers of the slowing of sales. This chart uses loyalty data for stores in California. Today over 90% of the sales we track in California have loyalty data attached. Using this information, we can understand intra-consumer purchasing trends. Most notable on this graph is the increase in the yellow bars representing the percent of customers that spent at least $200 in a three month period ending in November. We see in 2020 that 26% of customers spent at least $200, which was up 37% compared to 2019 (with only 19% of customers spending >$200). Looking into 2021 we see this has declined to only 23% of customers and is returning to its pre-COVID levels. This supports our hypothesis that sales increases in 2020 were heavily influenced by increased sales to consumers that were already in the cannabis market (rather than driving incrementally new customers into the space). As life has returned to normal we find consumer spend levels also returning to normal.
*Spend buckets were defined by reviewing the customer's total sales between September and November of the list year.
Here we again examine median like-store sales growth. We have changed the measure from week over week to a January 2020 baseline. We chose this visualization to help compare growth from pre-COVID sales. You can read this chart as anything at the 1.0 line represents sales equivalent to pre-pandemic levels. Any .01 increase is a percentage increase from that point. For example, in the week starting on 3/16/20, we see sales at about 1.4-1.45, which means sales were up 40% to 45% compared to sales in late January 2020 (only a two month period). We see throughout the summer of 2020 eclipsing 60% of their pre-COVID levels. We also saw sales climb in the spring of 2021 in most markets. Here we have put an additional baseline of Q4 2020 for reference. Examining sales in Q4 2021, we observe they have fallen from their Q4 2020 baseline, but still remain elevated above pre-COVID levels. We believe this further supports our hypothesis that recent slow downs are due to consumer demand returning to normal levels, rather than a broader market issue.
This final chart follows the same methodology as the prior chart but examines sales in Colorado at the category level. We found most notable the rise in Flower consumption throughout the pandemic and its notable decline in recent months. Categories that did not experience such a large boost in sales during the lock-down months also did not observe such a rapid fall to pre-COVID levels. Flower's market share had been waning pre-COVID as consumers switched to methods which were more convenient to consume like Pre-Rolls and Vapor Pens. Vapor Pen sales have stayed above their Q4 2020 baseline and Pre-Roll sales remain elevated compared to pre-COVID levels. We again believe this information supports our hypothesis that COVID lead to increase consumption in the cannabis enthusiast segment which has waned as society has returned to more in-person activities. We believe this has nearly stabilized back to a pre-COVID level and we do not anticipate the falling sales trend to sustain and expect sales will rebound as we enter into spring 2022.
While it does seem like sales trends in 2021 are slowing down, the data above shows that sales patterns are returning to pre-pandemic stability in legacy markets as more things return to normal in our day-to-day. To keep a close eye on the cannabis industry, sign up for a demo of Headset Insights and learn how you can assess the opportunities in the market.
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