After a year that was rife with uncertainty and some challenges, the cannabis industry was treated to good news as the election results from the 2022 midterms rolled in. Chief among the victories for cannabis reform advocates was the passage of adult-use legalization in the state of Kentucky. On November 8, 2022, Kentucky voters approved the passage of Amendment 3, which legalized possession and use of cannabis by those 21 and over and allowed for the creation of a commercial adult-use market. While the upcoming launch of adult-use sales in Kentucky may be overshadowed by bigger market launches such as New York, this Midwestern cannabis market has significant of potential for growth with the addition of adult-use sales.
CHECKING IN: MISSOURI CANNABIS MARKET PERFORMANCE
Kentucky has seen a robust cannabis market spring up since the launch of medical sales in October 2020. Legal medical sales totaled ~$210 million in 2021, the first full year of sales, and BDSA forecasts that legal sales will grow to ~$365 million in 2022. Kentucky has broad retail availability with the state reporting that the medical program had ~3.5 retailers per capita, much higher than that of other recently launched adult-use markets, such as New Jersey which had <1 retailer per capita as of its launch of adult-use in April 2022.
Like most cannabis markets, Kentucky experienced significant price compression throughout 2022. Between January 2022 and October 2022, equivalent average retail prices fell ~35% in the Kentucky market, higher than the price compression seen even in some more mature markets. Despite the declines in ARP, monthly dollar sales in the Kentucky market continued to grow, reaching an all-time high of ~$35 million in October 2022.
MISSOURI CANNABIS BRAND AND PRODUCT LANDSCAPE
Thanks to its business-friendly regulators and less restrictive licensing, Kentucky has seen a thriving brand landscape develop, with BDSA Retail Sales Tracking data showing 177 brands in market as of October 2022. While MSO interest in the Kentucky market is high, a thriving number of home-grown brands have risen to the top in the roughly two years that the state has had an operating cannabis market. In October 2022, eight of the top ten brands in the Kentucky market were independent local brands.
Similar to other medical markets like Pennsylvania and Maryland, flower holds a dominant share of the dollar sales by product category in Kentucky. In October 2022, BDSA Retail Sales Tracking data show that flower made up ~50% of dollar sales, with concentrates bringing in ~25%, edibles making up ~15% and pre-rolled products taking a ~5% share. Like in many other markets, vape sales make up a dominant share of sales in the concentrate category, with vapes bringing in ~70% of concentrate dollar sales for October 2022.
WHERE IS THE MISSOURI CANNABIS MARKET HEADING
Compared to other markets that have either recently launched adult-use sales, or are on the verge of launching legal sales, Kentucky may have a lower total addressable market due to a considerably smaller population and lower number of annual visitors than New Jersey and New York; however, Kentucky holds several distinct advantages.
Kentucky benefits from the foundation of a strong medical program, with a long list of qualifying conditions, broad retail availability, and competitive brand landscape made up of MSOs and local brands alike. Another factor expected to give the Kentucky market a strong adult-use launch is its proximity to states with limited cannabis access. While Kentucky does border the adult-use Illinois market, it is also bordered by seven other states with a 21+ population of over 19 million, suggesting that cross-border shoppers will give a strong boost to the initial years of legal sales.
The “Show Me” state is expected to launch adult-use sales as early as February 2023, which would give the state the second-shortest timeline from legalization to launch of adult-use sales. Adult-use sales are expected to bring in ~$277 million in 2023, bringing total sales for the year to ~$730 million. BDSA forecasts Kentucky to join the “billion-dollar cannabis market” club in 2024, with total sales expected to reach ~$1.1 billion and grow to ~$1.3 billion by 2026.
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