One (perhaps counterintuitive) trend that states with legal adult-use cannabis dispensaries are increasingly facing is thriving illicit cannabis markets.
An analysis performed by the Los Angeles Times in 2019 estimated that arrests related to the smuggling of cannabis had risen as much as 166% after the state legalized adult use.
Locally, Washington Square Park in Manhattan has been a thriving open-air cannabis market for the last three years. It’s a direct result of minimal enforcement and ultimately harms legal operators, but does serve as a good bellwether for the state of enforcement.
When I visited the park after New York announced a series of initiatives aimed at cracking down on the illicit market I was quite surprised.
The reduction in the level of open illicit sales was remarkable, as New York aggressively steps up enforcement. In the past, illicit vendors operated from over two dozen tables in the main area of the park, openly displaying product. This weekend, vendors were at just one table discreetly selling product in an inconspicuous manner.
Previously, police had always told me it was tough to enforce because they had to witness a sale, since merely displaying cannabis is not illegal. Apparently, they have found a way, probably by deploying undercover agents to make buys.
This is a big step in the right direction. Now, the state has to loosen onerous regulations that have alienated publicly traded cannabis companies, like the huge price of admissions and other rules that work against multistate operators. The stepped-up enforcement tells us New York has gotten the message, and it will soon take more steps to make its market friendlier to cannabis companies.
New York is a big potential market, so this matters for cannabis stocks. New York, however, is not the only big state that is in the process of opening up recreational use. Three other large states and a smaller one are showing signs of progress (see below).
This is important, as lawmakers at the federal level continue to drag their feet on reforms like favorable banking legislation that would let banks serve cannabis companies, and de-criminalization.
State-Level Progress
While lawmakers dither in Washington, D.C., here’s a roundup of significant progress at the state level which continues to be bullish for cannabis stocks.
* In a renewed bipartisan effort, two Pennsylvania senators have introduced a new bill to legalize marijuana in the state. Sens. Dan Laughlin (R) and Sharif Street (D) filed the legislation last month.
“With neighboring states New Jersey and New York implementing adult use, we have a duty to Pennsylvania taxpayers to legalize adult-use marijuana to avoid losing out on hundreds of millions of dollars of new tax revenue and thousands of new jobs,” said Laughlin. They estimate legal recreational use sales would bring in $400 million to $1 billion in annual tax revenue.
The two senators sponsored a legalization bill last session that failed. They think the new bill contains changes that will help it get approved. Polls show that two-thirds of Pennsylvanians support legal recreational use.
The medical use market in Florida continues to expand as more patients get approved. But the sea change here would come from approval of recreational use. Floridians will get to vote on recreational use in the 2024 elections if the Florida Supreme Court approves a proposed referendum on the issue.
The referendum has garnered enough signatures, but Supreme Court approval is not a given, since the court skews conservative. Conservatives know that a cannabis referendum could work against them in an election by bringing out the liberal vote. The court has until April 2024 to decide. Expanding the market beyond medical use, which is now legal, would create one of the biggest state markets in the country, given Florida’s population of 22 million, and estimated 138 million tourist visitors per year.
Cannabis activists in Ohio say they have turned in enough signatures to support a marijuana legalization initiative on the state ballot this November. The campaign was run by the Coalition to Regulate Marijuana Like Alcohol (CTRMLA). A recent poll by Spectrum News and Siena College Research Institute found that 60% of Ohioans support legalizing cannabis.
Cannabis activists in Nebraska have begun collecting signatures to support the placement of medical marijuana legalization initiatives on the 2024 ballot. The campaign is being run by Nebraskans for Medical Marijuana (NMM). A prior effort collected enough signatures, but the state’s Supreme Court rejected the referendum for violating a rule that requires initiatives to address a single subject only.
Meanwhile, sales growth remains robust around the country, dangling the prospects of tax revenue in front of lawmakers overseeing these state legalization efforts.
* Michigan marijuana sales hit another record high in July, with sales of $277 million exceeding June’s prior record of $261 million.
* Massachusetts cannabis sales hit a record high of $136 million in July.
* Connecticut saw record high marijuana sales last month, or $24 million.
* Arkansas sales hit a record high of $141 million in June, up 5% over the prior year. Arkansas only permits medical-use sales.
* Illinois adult-use sales hit $140 million in July, the second-highest monthly total ever.
* Recreational and medical sales in Missouri hit $123 million in July, the fifth straight month sales came in at that level.
It is notable that states are booking these robust sales gains despite the roughly 30% decline in wholesale prices over the past year. All of this suggests the cannabis group is in the process of bottoming, so it continues to be a buy. For more on the best names to buy and when, consider subscribing to Cabot Cannabis Investor today.
