COVID Be Damned — US Cannabis Sales Hit Record High in 2020

Few industries have managed to weather the COVID storm — but cannabis comes out swinging.

Cannabis products
Photo by Leaflink

Summary:

  • The US cannabis industry reported record high nationwide sales of $17.5 billion, an almost 50% increase from 2019. 
  • Individual states saw huge sales boosts— California and Oregon witnessed a 26% and 29% increase, respectively.  
  • This growth has mainly come from adult-use and mature market states, while fledgling markets also had a bumper 2020.
  • COVID seems to be a driving force behind this increase, as well as widespread clampdowns on illegal dispensaries and radical cannabis reforms at the state-level.
  • The cannabis industry has proved itself as a resilient business sector, with a 5% overall increase in cannabis use across the country.
  • This increase in cannabis sales in legalized states has meant more tax money has been spent on its communities, though the black market still thrives.
  • It is predicted that industry sales will grow to over $40 billion by 2026.

The US cannabis industry hit record-high sales of $17.5 billion in 2020, signaling a 46% increase from 2019, according to a recent report (original report available here).

The growth is, in part, attributed to increased adult usage during the COVID-induced lockdown of 2020.

 

U.S. cannabis sales growth in 2019 vs. 2020

Cannabis dispensaries were deemed “essential businesses” in many states. Oregon, California, Illinois, and Colorado allowed both medical and recreational cannabis storefronts to stay open, while Arizona, Florida, Pennsylvania, and Ohio only allowed medical cannabis dispensaries to stay open. This proved to be a lifeline for business owners following the rolling-out of widespread shelter-in-place orders as the pandemic took hold.

As a result, mature markets in California and Oregon witnessed a significant leap in sales compared to 2019, at 26% and 29% respectively. Meanwhile, Illinois’ budding industry rose by $784 million — the largest gain in 2020.

Other factors include stricter crackdowns on illegal dispensaries (resulting in increased footfall for legal businesses) and also five more states making recreational cannabis legal, which brings the total number of legalized recreational cannabis states to 15 (incl. District of Columbia). 

How surprising is this?

Even though it’s obvious that most essential businesses would flourish under these unprecedented circumstances – especially in conjunction with widespread laws that are conducive to them succeeding — the cannabis industry, in particular, has proved to be particularly buoyant. 

“We expected more potential impact from an economic downturn, but the industry has proven to be resilient,” said Kelly Nielsen, Vice President of Insights and Analytics at BDSA, who went on to describe the cannabis industry as “potentially recession-proof”.

According to a survey conducted by the BDSA, 30% of respondents said they shop more for cannabis products and 25% have increased their usage generally, even since before the pandemic. 

Overall, cannabis use is up 5% in legalized states and Colorado’s market penetration, in particular, is now at 48%, a rate that Nielsen describes as “compelling”, in reference to its alcohol penetration which is currently at around 60%.

A financial boon for communities

Increased cannabis sales’ benefits aren’t limited to individuals needing respite from their lockdown blues, or even business owners who have seen their income skyrocket, it has also resulted in more tax revenue that can be spent on communities. So what does this look like in real terms for some states?

Alaska 

Since fully legalizing cannabis in 2014, Alaska saw its tax revenue exceed $24 million in 2020, which isn’t bad considering its tiny population. Half is allocated to the Departments of Public Safety and Corrections, as well as Health and Social Services. 25% goes to the Marijuana Education Fund and the rest is spent on the general fund.

California 

The Sunshine State, which fully legalized back in 2016, brought in over $1 billion last year. California first covers its cannabis research and regulatory costs before allocating the rest. 60% goes to child-focused anti-drug initiatives. 20% is spent on environmental programs and the last 20% goes to public safety.

Colorado

Colorado fully legalized cannabis in 2012, the first-ever US state to do so. It levies a 15% retail and wholesale excise tax on cannabis, though recreational cannabis is exempt from general sales tax. Its 2020 tax revenue of almost $400 million was mostly spent at the state level for schools, the general fund, and the marijuana tax cash fund. The remaining 10% was allocated to local governments.

Illinois

For newcomer Illinois, 2020 was its first year as a fully legalized state. It started out very strong by pulling in almost $53 million in tax revenue, of which 35% went to the general fund. A quarter was allocated to the Illinois Recover, Reinvest and Renew Program. A fifth went to mental health and substance abuse initiatives while the final fifth was split between state bills, public education, and local governments.

Struggles still remain 

Despite 2020 proving to be a bumper year for legal cannabis, the black market continues to be a particularly troublesome thorn in the side.

It is estimated that unlawful cannabis sales amount to more than $100 billion each year in the US and is felt particularly in California, where black market sales surpass those from the legal sector.

Consumers in the state can expect to pay between 40% and 80% above the standard price for cannabis thanks to its state, excise, and local tax rates. On top of this, extra costs are needed to fund its stringent quality control testing, which falls to the consumer.

Additionally, only half of California’s counties have chosen to allow commercial cannabis activity to operate, while the other half is plagued with technical issues and accusations of corruption, which has resulted in long delays in issuing licenses. 

Therefore, the black market remains the only place for those who legal cannabis cannot reach.

While the legal market is slowly but surely catching up, there is still a lot to be done. BDSA estimates that legal cannabis sales in the US will reach $41 billion by 2026, but the success of this largely depends on whether the industry can get a handle on its black market and make legal cannabis the preferred option for everyone.