I continued my trek along America’s hottest cannabis markets to understand what’s really going on in Massachusetts, Illinois and Missouri. (If you missed out on my insider info about New York, New Jersey, and Pennsylvania, you can catch up here).
1. Boston, Massachusetts
NECANN Boston is a three-day homecoming of cannabis on the east coast. This year marked my fourth pilgrimage to the event, and as a resident just 90 minutes away from Massachusetts, I’ve been immersed in the state’s adult-use market since its inception. Not only was it the first state where Terpene Belt Farms made its mark, but it’s also where I’ve built strong relationships with some of the most fascinating players in the game, outside of California.
Back in 2019 when less than 20 retail stores were open across the state, the conference floor was tiny and only POS software shops and insurance brokers had booths. This year, the floor was packed. Very similar to last year, there were more operators and brands with booths on the floor than there were ancillary service providers (which is never the case at industry shows). On top of that, full teams were present, from the marketing and sales folks to manufacturing leaders to the c-suite.
The tone of the show was overwhelmingly positive — something unexpected considering the industry’s falling stock prices, layoffs and consolidation. Massachusetts in particular has seen falling wholesale flower and distillate prices for at least 18 months.
Here’s what I learned:
- A predictable oversupply issue isn’t being handled effectively: This has actually been a decimating issue in every mature market (CA, CO, MI, OK, OR, NV, WA, etc.), so it’s not surprising that this is the case in MA. Indoor capacity exceeded demand in the past 24 months as store count surpassed 300, leading to market saturation. For the first time, the average retail store began making less than they did the month before.
- Amid fierce competition, the legal market has produced high-quality products: Massachusetts is close in proximity to established and experienced legacy-market cannabis cultivators in Maine and Vermont, so there’s no shortage of great bud throughout New England. The legal market has flourished, offering high-quality products that draw consumers in. Consequently, the market is dominated by premium flower brands and a wide selection of all-natural cannabis-derived products such as vape pens and gummies.
- Dominating an entire region (a few neighboring states) is the endgame: This is especially true for densely populated states. When you wait for the walls to fall and consolidate locally, you’ll likely get bought out by a national player or go on to run your much more efficient regional fiefdom. There are a number of northeast operators that are already in their 2nd, 3rd and 4th states, and the number of MA operators that are also in ME, CT, RI or NJ is growing by the week. The same thing goes for RI operators getting onto a CT license and NJ license or ME operator getting onto a CT or NJ license.
People that have been attending NECANN for a handful of years now truly look forward to seeing the progress of their friends and the market they’ve been helping to build. The show is a great opportunity to see how the first east coast adult-use cannabis market has developed and to learn about how to expand into a neighboring state.
2. Chicago, Illinois
Next, I flew to Chicago — the capital of corporate cannabis — for my second meeting with operators in a six week period. We try to meet with MSOs as often as possible. Our business model was built around becoming a scalable supply chain partner for businesses looking to build CPG style products across state lines (similar to Coca-Cola’s playbook). This trip, we met with one of the market leaders at their headquarters and then had dinner with them.
A few takeaways:
- Original medical license holders maintain a stranglehold on the adult-use market: This has led to stable, high prices for flower and distillation. However, this also means there is little competition, resulting in a lack of diversity and high-quality products. While there are some standout brands, the market is largely dominated by MSOs such as Cresco, GTI, Pharmacann, and Verano, who have not felt the need to innovate as much as in other states with more competition. For example, Massachusetts has half the population, but triple the number of adult-use dispensaries and likely four times the number of brands.
- Real competition is here for the first time: Illinois’ previously insulated market is now facing competition for the first time from out-of-state brands partnering with in-state cultivators, as well as from new adult-use cultivators and manufacturers emerging from years of legal battles. Even established market leaders are creating new product lines and brands to stay ahead in an increasingly competitive marketplace over the next year or two. It remains to be seen whether the MSOs can maintain their leading brand market share in Illinois.
3) Missouri (St. Louis, Columbia, and Kansas City)
Our three-day tour across Missouri began the next morning when we flew from Chicago to St. Louis. Our aim was to visit three cities and six operators across the state while exploring the local medical and adult-use cannabis market. After renting a car in St. Louis, we set out to meet with a leading manufacturer in the state and for a lab tour.
(Now, if you’re ever in St. Louis, check out Bogart’s Smokehouse. This was about as neighborhoody delicious of a brisket lunch stop as they come.)
What we learned:
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- Adult-use coming in hot is an understatement: The state’s medical market matured rapidly, with 50 cultivators and 80 manufacturers selling their products in over 200 dispensaries. This built up a glut of inventory. And then, like a white knight coming to save the princess, adult-use not only passed in November, but was enacted and implemented faster than any other medical to adult-use market conversion. When it was turned on in early February, it performed exceptionally well, with over 200 medical dispensaries converting to adult-use. Missouri also has the rare benefit of bordering eight states, some with only medical markets and others where cannabis remains illegal.
Later in Columbia, we had dinner at a local restaurant where we did a terpene tasting in a private room. You just don’t know the local industry leaders until you have dinner at their local spot. It was the kind of spot where you feel like you’re the only ones in the restaurant. We also toured another facility.
More learnings:
- The built-up inventory glut was depleted in the first two months of adult-use. Although there are mature cultivators online, many have not hit their cap yet, and there are only a few super grows in the state that are not fully online.
- As the adult-use market continues to grow, wholesale flower and distillate prices are on the rise, and in-state and out-of-state brands compete for shelf space. The quality of products is ready for a necessary evolution cycle. There are new in-state brands about to emerge across the state, and new out-of-state brands finding co-pack partners and coming to the market regularly.
During our drive from Columbia to Kansas City, we found Panther Barbeque, a legendary spot for pulled pork sandwiches and salty crinkle-cut fries. When we arrived in Kansas City, we met with our clients and toured a few more facilities. We had dinner with a new client at Scott’s Kitchen at Hanger 29, where we tasted their delicious pastrami brisket burnt ends.
Biggest takeaway:
- Although there is an active medical market, most operators are still in the early stages of building out their scaled cultivation and processing infrastructure. We observed that new product development is underway, and out-of-state brands continue to find local co-packing partners. It’s clear that we can expect the launching of many new products and brands across Missouri for a long time to come.
Overall, it became clear that Missouri is cooking up more than just amazing barbecue. With adult-use sales ramping up insanely fast, it’s safe to say that all eyes are on Missouri now and in the near future.
