One area of certainty — in a year primarily marked by its notable uncertainty — was the strides made in the legalization of cannabis. The 2020 election was another exciting turning point: Four new states joined the 12 existing markets with legal recreational cannabis, bringing adult use to 15 regions in just eight short years. Nearly one in three Americans now live in a state where those aged 21 and older can purchase and possess cannabis freely. This will likely expand significantly with the addition of more East Coast markets poised to legalize in the near future through legislation in New York, Pennsylvania and Connecticut.
It gets even better. With a new federal administration comes the likelihood of a mandate to decriminalize cannabis and a path to legalization through bills in Congress such as the passing of the MORE Act by the House of Representatives, with its lead sponsor Vice President Kamala Harris. Consumer sentiment favoring legalization is expanding. According to findings from Pew Research from 2019, two-thirds of Americans approve of adult-use in what has become one of those rare bipartisan issues with differences of opinion occurring predominantly along generational lines. This is clearly illustrated by millennials, a demographic in which both Republicans and Democrats are highly supportive, with 71% and 78% approving, respectively.
Finally, during an unpredictable economic climate, and even after stimulus checks ceased, cannabis has proved resilient. Cannabis retail was classified as an essential business during nationwide lockdown orders, and consumers continued shopping, often making larger-than-usual purchases. This persistence is represented by compound annual growth rates that have reached upwards of 25% in markets like Colorado at the end of 2020, according to my company’s reported numbers. When we look back in another ten years, I think the need for national legalization will look obvious.
With this momentum around legalization, there has never been a better time to evaluate your cannabis strategy. When an entirely new category of consumer goods comes to the market, it unlocks massive opportunity that touches organizations of all shapes and sizes.
A few standout industries will certainly be impacted directly, and already have this exposure in markets like Canada, where cannabis is federally legal nationwide. One such industry that I expect will feel a significant impact is the consumer packaged goods (CPG) industry, especially companies operating in the alcohol, health and wellness, and beauty niches. These businesses are at some risk of losing a share of wallet spend to cannabis alternatives. This shouldn’t be particularly surprising for organizations in this space, as we’ve already seen a number of investments being made by organizations within these categories into cannabis license holders in both the U.S. and Canada.
Beyond risk, there is a massive opportunity ahead for almost every type of business, including those noted in CPG and extending out to all types of service providers, suppliers and even media. Changes at the federal level in the U.S. would unlock entirely new channels for traditional businesses to support. For example, companies providing banking, payment, point-of-sale and real estate services have historically possessed a wait-and-see attitude, but would be able to capitalize directly with the easing of federal restrictions. There is a cottage industry of cannabis service providers that have thrived in the absence of traditional competition. However, that would all change in the blink of an eye.
Even before we see any federal change, there is still plenty of opportunity for service providers of all shapes and sizes to get involved in this emerging category. Cannabis businesses are like any other, in need of services like accounting, marketing, advertising, supply chain solutions and so on. We are already seeing average compound annual growth rates of sales over 20% at the state level, which is a desirable market for any category. So many Americans now live in legal markets. Expanding opportunity on a state-by-state level creates natural growth opportunities.
With all this momentum, now is the time to consider your strategy. It’s important to think about the cannabis industry not only from a competitive perspective, but also from an opportunity angle. Consider how a world with legal cannabis, a market that attracts the coveted Generation Z and millennial consumer demographics and leads to thousands of licensed operators with a need for services, can have a positive impact on your business.