At Headset, it’s always exciting to watch a new market legalize adult-use cannabis. As the most densely populated state, New Jersey is positioned to become one of the highest revenue cannabis markets in the US. Based on the per capita spends of other cannabis markets, we can expect New Jersey’s total annual market range to be between $1.3B and $2.9B. In this report, we take a look at the first month of adult-use cannabis sales and compare changes in medical cannabis sales trends. We also examine other cannabis markets to see what we can learn about the future of New Jersey cannabis sales.
When we examine the first month of adult-use cannabis sales in New Jersey, we see some patterns common in new adult-use markets. When doors opened on April 21st, over 12,000 cannabis consumers celebrated the excitement of the first day by going to stores. Customers spent a total of $1.9M on the first day of cannabis sales, which calculates to an average basket size of $152.76. By May 18 however, adult-use average basket sizes dropped down to $111.93. When we compare average item prices of medical cannabis products and adult-use cannabis products, prices are relatively similar in New Jersey currently. But when we look at the trends of similar markets with combined medical and adult-use sales, we can expect to see a lower proportion of total sales coming from medical transactions over time. During the first month of adult-use sales, the Flower category accounted for 61% of total sales. This is a common trend in emerging markets, and we expect this category share as well as the price of Flower to decrease over time.
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.
Headset utilized a sample of ten retailers in New Jersey (a mix of medical and adult-use cannabis retailers) to create these analyses. All pricing data is reported as post-discount, pre-consumer-paid-tax. For many analyses in this report we compare two time frames: ‘Pre-Launch’ is defined as March 21st 2022 through April 19th, 2022 (4/20 purposefully excluded), ‘Post-Launch’ is defined as April 21st, 2022 through May 18th, 2022.
Let’s begin our analysis by comparing the average medical transaction size in New Jersey before and after the launch of adult-use sales. In this graph, we can see that the average basket size of medical purchases dropped slightly after the launch of adult-use sales, while adult-use baskets were significantly smaller than medical baskets. The first day of sales on April 21 totaled $1.9M in sales by 12,438 customers, which calculates to an average basket size of $152.76. This high basket size value was likely triggered by first-day enthusiasm. In fact, average basket sizes decreased significantly within the first three days of opening, driven both by fewer items in the basket and higher discounts. By May 18, the average basket size dropped to $111.93 and the average discount increased to 4%, which was an increase from 1% on opening day.
Here we can see that the larger medical basket sizes are primarily caused by medical customers purchasing more total products per trip than adult-use customers. This is a common trend that we see in markets with both combined medical and adult-use sales and makes sense logically, as medical consumers are more likely to stock up on the medicine that they need.
One unique aspect of New Jersey’s adult-use market is the relatively low tax advantages given to medical customers. In many markets, there are heavy taxes on adult-use purchases that are waived for medical transactions. In New Jersey however, adult-use purchases are taxed at the state sales tax of 6.625%, while medical transactions are currently taxed at 2% (and this will drop to zero in July). Compared to many other states, this is a relatively small difference and may cause a faster than average transition from medical to adult-use purchases. In the above chart we can see that after adult-use sales began, the average pre-tax amount for cannabis products were remarkably close between medical and adult-use transactions. Interestingly, average item prices of medical products increased by almost 14% after the adult-use program launched.
Let’s briefly pivot away from New Jersey data to think about what lies ahead for this market. This graph shows the proportion of total Michigan cannabis sales generated over time by adult-use and medical transactions. We can see that within 18 months after the launch of adult-use purchasing, the proportion of medical sales declined steadily from a strong majority to roughly a quarter of sales. We expect the decline to be even speedier in New Jersey because of the taxes previously mentioned.
Here we can see the relative market share of Flower, Pre-Roll, and all other categories of cannabis products in New Jersey. During the first month of adult-use sales, Flower accounted for more than 60% of total revenue. This value is slightly higher than in the medical market. We see a similar trend reflected for Pre-Roll market share, where adult-use share is slightly higher than that of the medical share. We expect Flower market share to decrease over time, as Flower market share usually decreases as markets mature.
Now, let’s take a closer look at the price of Flower since the launch of adult-use in New Jersey. We can see that the average price of an eighth (3.5g) of Flower is significantly higher in New Jersey’s adult-use market than in the medical market. This is an interesting difference from the total market average item pricing we analyzed earlier in this report. In New Jersey’s adult-use market, there is currently an excise tax on cultivators of 33% of 1% of the average retail price per ounce, which could be contributing to these elevated prices. As with most markets, we expect prices to compress over the first year or two of sales.
Here we can see how Flower prices have been changing in other markets. This graph shows the average price of 3.5g Flower products in Illinois and Michigan over the last two years of sales. While the trend for average item price in Michigan is more volatile than in Illinois, we can see that in both markets, prices are declining over time. The average price of an eighth in Illinois in April 2020 was $58.09 but by April 2022, this price decreased by nearly 20% to $46.58. The average price of an eighth in Michigan dropped by a whopping 50% over the same time frame, decreasing from $48.18 to $23.97. This is a very common trend across emerging cannabis markets and we expect to see it continue in New Jersey.
Projecting revenue of new markets can be difficult. However, we can look at our store connections and state-reported data to analyze sales volumes in New Jersey. As we saw earlier, adult-use cannabis sales on opening day were reported to total $1.9M. Headset’s connected stores saw similar sales volumes during the second day of adult-use sales (April 22), which leads us to believe that sales on 4/22 were likely between $1.7M and $2.0M. Since that time, on average, stores have seen decreases in daily revenue stabilizing at about 60% revenue volume compared to the first two days of sales. Thus, we project average daily sales in New Jersey to be about $.8M-$1.2M per day through the end of April and into May.
These sales projections are likely to grow over time as the adult-use market matures in New Jersey. We can project the potential size of New Jersey cannabis sales by looking at per capital sales, which is one of the simplest and most powerful ways to estimate the total potential of a cannabis market. Here we can see the estimated annual per capital cannabis spend in 2021 across many US cannabis markets, and it varies widely from state to state. Using the low of California at $136 and the high of Colorado at $314, we can estimate New Jersey’s total annual cannabis market size between $1.3B and $2.8B.
Note: Population values US Census estimates as of July 1, 2021 and can be found on table US Census table NST_EST2021_POP.
This is only the beginning for New Jersey cannabis. While there are many things we can learn from mature markets that have made the transition from medical to adult-use before, the New Jersey market poses its own set of challenges and nuances for retailers and operators in the industry. If you’d like help assessing the opportunities in the cannabis industry, sign up for a demo. In the meantime, stay tuned for more New Jersey insights from Headset!
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