Cannabis Markets

Monthly Sales Trend Forms in Colorado Marijuana Market

`Colorado is home to 5.7 million people.

And I was almost one of them.

Years ago, I was covering the oil and natural gas industries. The Rocky Mountain Front was my area of expertise. And Colorado is home to seven of the largest natural gas fields and two of the largest oil fields in the country.

My wife and I spent plenty of time wandering Colorado, looking at property. But eventually we decided to stay put.

Interestingly, my investing focus still turns to Colorado today, but for different reasons.

Back in 2012, Colorado and Washington became the first U.S. states to legalize adult-use sales of cannabis. These are the oldest legal adult-use markets in the country.

I recently went into detail about the state of Oregon’s market, as there are some trends we really have to watch there.

Today, I’m going to focus on Colorado.

It’s a strange place where it’s easier to buy a legal bag of weed than it is to purchase a venti pumpkin spice latte. There are more than 1,000 medical and recreational dispensaries in Colorado and only 322 Starbucks (Nasdaq: SBUX) storefronts.

Plus there are five times more adult-use dispensaries than Walmart (NYSE: WMT) locations.

Now, Native Roots and The Green Solution are the largest dispensary operators in the state.

But in the first half of 2018, 36% of all new business licenses in Colorado were for recreational dispensaries.

So, since legalization, there’s been rapid development and expansion of the industry.

And in 2018, the state notched a major milestone – more than $6 billion in total marijuana sales over five years.

Since 2014, Colorado’s marijuana sales have increased 126%…

They neared $1.55 billion last year.

And since March 2016, total state cannabis sales have topped $100 million per month.

Now, over the years, we’ve seen medical sales taper off as recreational sales stormed higher.

This is the trend we expect to see in large-scale markets like California and Canada. In the beginning, consumers apply for and receive medical cards. Then, once the recreational market is up and running, they switch. It becomes easier to purchase cannabis recreationally than to go through the medical process.

But in Colorado, we’re also seeing a transformation from a high-growth market to a more mature market. As we can see from the chart, the trajectory in sales is flattening.

And when we look at year-over-year growth, we see a tremendous slowdown…

So, yes, marijuana sales in Colorado were approximately $1.55 billion in 2018. But that was only a 3% increase from the $1.51 billion in 2017.

As a market matures, it stabilizes. But the challenge becomes staving off declines.

Of course, like so many other markets in the U.S., Colorado is struggling with oversupply. In 2017, the state produced 340.7 metric tons. But demand was just 301.7 metric tons. And the situation hasn’t improved much.

Because of this, the average price per pound of dried flower collapsed 61% from $1,948 in 2017 to a low of $759 in October 2018.

It has since rebounded to $781. But that’s still a considerable drop from those 2017 highs. And with so many new businesses with licenses looking to open adult-use dispensaries, it’ll be interesting to see what happens to these wholesale prices.

Finally, we see a “sawtooth” pattern in monthly sales in Colorado…

I love trends. I’ve built my career on them. And even though legal weed is still nascent, it’s demonstrating a very clear pattern.

I’m showing just the last three years here, for clarity’s sake.

This pattern is similar to what we see in most marijuana markets. Sales peak in late August or early September. Then they drop through February.

But in Colorado, we see a big spike in March. Each year, there’s roughly a 20% increase in sales from February to March. And since 2014, Colorado marijuana sales have set a record in March. Though these are ultimately surpassed by July or August.

That means March is cementing itself as the official start of “pot smoking season.” So you should expect to see another record set when Colorado’s March sales figures come out. And don’t forget, 420 – pot culture’s most celebrated day – is a little more than a month away.

Colorado is one of America’s most mature marijuana markets. Which means we’re starting to see growth stall in the face of oversupply and market penetration.

But we’re seeing an uptick in concentrates and edibles. And there are high hopes for CBD to inject new life into this old dog.

Good investing,