After years of early-stage growth, cannabis markets have seen a shift toward a more nuanced landscape in the past year, with legal sales in the most mature markets stagnating and even declining while new and emerging markets fuel growth. The declines seen in mature adult-use markets have gotten the most coverage, but the change in legal cannabis sales has also had a dramatic effect in some medical markets. Unsurprisingly, medical markets in states with adult-use programs have seen declines, particularly in states that have recently launched adult-use sales, while emerging medical markets continue to grow. Given this shift in medical market trajectories, it’s worthwhile to highlight the performance of the medical channels across the US, as well as provide insights into market dynamics that may be driving these trends.
Where medical markets stand today
While adult-use markets comprise the bulk of both sales and attention when it comes to legal cannabis, medical-only markets still hold huge opportunity, especially in large population states that have yet to make the move to full legalization. When looking at the list of the largest cannabis markets by dollar sales in 2021, the Western cannabis powerhouses of California and Colorado did hold the top spots, but rapidly growing medical-only states were not far behind. Florida saw the fifth highest dollar sales of any US market, bringing in ~$1.8 billion in sales. Not far behind was Pennsylvania, which saw its legal sales total outpace that of Oregon, with ~$1.2 billion in dollar sales per BDSA Retail Sales Tracking.
Medical markets also represent some of the best growth opportunities, a major plus as the largest adult-use markets have faltered since late 2021. BDSA forecasts Ohio’s medical only market to see ~40 percent growth in 2022, totaling ~$550 million in legal sales for the year. Much of this growth is due to recently relaxed medical regulations that have significantly improved access, which shows how constrained medical markets can hold big potential. The strong foundation being set by Ohio’s medical market is one reason why BDSA forecasts the state to be a top-ten contributor to global cannabis sales growth by 2026.
There are also substantial growth opportunities for medical sales in the South, with many states in the region having either no medical access or highly restricted medical programs. Texas, which is home to an estimated twenty-one million 21+ adults as of 2022, represents one of the biggest untapped consumer pools in the country, given that the state only allows access to low-THC cannabis for medical use.
Are medical channel sales in trouble?
Medical channel sales in adult-use states present a much different story than in medical-only markets. In the past, markets that have added adult-use access have seen medical sales decline, but still hold a significant share of sales for the first few years. More recently, medical channels have seen much sharper declines soon after the launch of adult-use sales.
Colorado, which launched legal sales in 2013, saw its medical channel hold on to a sizable share of sales long after the introduction of adult-use. In Q1 2020, the medical channel in Colorado still held ~25 percent of total legal sales per BDSA Retail Sales Tracking. Colorado’s medical channel has been particularly strong compared to other mature markets, which many attribute to the strong regulatory program established before adult-use was phased in–unlike California, which lacked comprehensive regulation of medical sales prior to adult-use.
The staying power of medical cannabis sales in Colorado is sharply contrasted by more recently launched adult-use markets like Michigan, where adult-use sales launched in early 2020. Even as Michigan has seen more consistent growth than other markets in the past year, the medical channel has taken a significant dive. Between August of 2021 and August of 2022, dollar sales in the medical channel have fallen by more than half, with medical sales making up only 9 percent of total monthly sales in August 2022.
Even in markets where the medical channel is seeing comparatively strong performance, it makes up a much smaller share of total sales than in some of the most mature markets. Illinois has had active adult-use sales since January of 2020and, even though medical sales have remained somewhat stable, its size is quickly being dwarfed by the growing adult-use channel, with the medical channel’s share of monthly dollar sales falling from ~35 percent to ~15 percent between August 2020 and August 2022.
One probable reason for these more rapid declines in medical channels is the significant price declines that are being seen across markets. Seeing as how most state regulators do not charge either excise or sales tax on medical cannabis, medical patients in adult-use markets were motivated by lower prices to keep their medical cards even after adult-use was available. But now BDSA Retail Sales Tracking shows that the Michigan market has seen average retail prices for a gram of flower fall ~40 percent between January 2022 and August 2022. Illinois has seen a similar trend, with retail prices falling ~30 percent between January 2021 and August 2022.
All things considered, this should not be taken as a reason to disregard the medical channel or medical consumers. BDSA forecasts that new adult-use markets will be the largest contributor to total growth in the cannabis industry in the next five years, but US medical markets will still make up ~20 percent of global cannabis sales by 2026. Furthermore, BDSA Consumer Insights data from Spring 2022 show that ~60 percent of consumers in adult-use states consume for health or wellness reasons. Regardless of how medical channels are performing across the US, brands and retailers that hope to stay afloat must take a holistic approach to their strategy by appealing to all consumers, rather than focusing on any one segment of the consumer base.
