Ohio’s medical marijuana market plateaued last year in terms of the value of annual sales under one of the country’s most tightly regulated cannabis programs.
There was approximately $484.4 million in medical marijuana sold in the state by licensed dispensaries in 2023, according to figures from the Ohio Department of Commerce.
While that’s a new record for annual sales by dollar amount, compared with sales totaling $478.7 million in 2022, the value of the market increased by just 1.2% over the prior year, according to a Crain’s analysis.
Net sales in Ohio have increased every year since the state’s first medical dispensaries opened to the public in January 2019, but the annual financial growth rate has been dropping precipitously every year since.
By dollar amount, sales increased by 297% in 2020, 72% in 2021 and 26% in 2022 before effectively bottoming out at 1% in 2023.
While growth is, naturally, going to slow as a market matures, that’s nonetheless an underwhelming trend for the state’s cannabis companies.
“The moderate increase of 1% would not be anticipated in anybody’s traditional model of a medical market,” said Adam Thomarios, founder and CEO of Akron-based Klutch Cannabis.
“One-percent growth in a five-year-old medical market causes a lot of concern, especially when license holders had to ship 20% to 30% more product just to stay even with 2022,” said Andy Rayburn, CEO for Eastlake-based Buckeye Relief and president of the Ohio Cannabis Coalition, the state’s cannabis trade group otherwise known as OHCANN.
As Rayburn notes, price compression—due in part to an oversupply—means companies had to sell more product in 2023 to achieve that 1% gain in industrywide revenue.
By volume, Ohio cannabis companies sold 39% more plant material (i.e. flower) and 25% more manufactured products (such as edibles, oils, etc.) in 2023 over 2022, according to state figures.
Meanwhile, the average retail price for flower in Ohio was about $27 per one-tenth of an ounce—a unit of measurement put in place by state regulators—in January 2022 compared with $16.92 at the end of December, according to the latest state data.
That equals a decrease in the average retail price over nearly two years of about 37%.
Price contraction may be a good trend for patients and consumers benefiting from lower retail prices, but it remains a challenging one for operators who have expected a more robust medical market.
“Buckeye Relief and Amplify are doing fine, but our returns are greatly reduced from the prior three years,” Rayburn said. “Our focus has been to keep market share and shelf space because eventually there will be a recreational program.”
He added that he personally estimates “at least 60%” of licensed cannabis companies in Ohio are “losing money.”
As of Nov. 30, patients with an active registration totaled 175,484 compared with approximately 162,000 active patients as of fall 2021. That’s down from a peak of more than 180,000 patients several months ago, which may be due in part to some patients not renewing medical cards ahead of the future availability of adult-use products.
In years past, industry stakeholders had been expecting a customer population in Ohio’s medical market to settle somewhere between 200,000 to 300,000 active patients.
Why that hasn’t happened may be attributed to a variety of potential factors by industry stakeholders and observers, including: high retail prices; a somewhat restrictive list of permitted qualifying conditions for medical marijuana; prohibitions on advertising, the impact of inflation on disposable incomes; imperfect dispensary access; competition from neighboring adult-use states like Michigan; and a lack of protections for employees who want to try medical cannabis.
Michigan topped $3 billion in total marijuana sales in 2023. Medical sales of approximately $80.8 million accounted for just 2.6% of that amount.
The Michigan market continues to benefit from customers traveling across state lines to buy cheap products there.
“Right now, this is an industry that is very much stagnant and very much losing business and tax revenue to other states,” said Kevin Murphy, a co-owner and board member at Cleveland-based Standard Wellness Co. and managing partner of law firm Walter Haverfield.
These challenges with the medical market make the addition of an adult-use market approved by voters last fall that much more critical for industry players, which is why the Issue 2 campaign expectedly drew so much financial support from the industry.
Between January 2019 and year-end 2023, there has been $1.6 billion in total legal marijuana sales in the state.
Cannabis research firm New Frontier Data, which predicted that Ohio’s medical market would see approximately $470 million in annual sales in 2023, estimates that the state’s cannabis market could grow to nearly $2 billion in adult-use sales in 2028 with another $460 million in medical sales.
But the success of an adult-use market will hinge in large part on how a rec program is rolled out.
Regulators continue to write policies for an adult-use program that, based on the statute approved by voters in November, is to be functional around September 2024.
Meanwhile, state lawmakers continue to introduce legislation that could shape critical aspects of the coming rec program. Ideally, an effective adult-use program in Ohio should capture sales occurring in illicit and neighboring markets.
But companies worry that things like proposed increases to excise taxes—set by the statute created by Issue 2 at 10%—and restrictions on THC potencies, for example, could run the risk of pushing away potential customers.
“If potency were curtailed, that may reduce or eliminate a number of products in an SKU someone might want to produce because you can’t compete with products on the illicit market or in Michigan,” said Pete Nischt, vice president of compliance with Klutch.
Companies like Buckeye Relief are holding off on making big investments in their company in anticipation of adult use because of uncertainties about how regulations might shake out.
“Because of the confusion at the state legislature, nobody is expanding operations to accommodate the major additional business that will come from a well-written statute like Issue 2,” Rayburn said.
Despite these concerns and uncertainties, operators are very optimistic about the boost they’re expecting from an adult-use market.
Klutch is preparing for the coming rec market by investing in efficiencies, including some automated equipment, even if it’s not yet necessary to expand growing or manufacturing facilities.
“The market will be larger than the medical market, so for us not to be making some investments right nor would be foolish on our part,” Thomarios said. “We are pretty bullish that an adult-use market, no matter what it ends up looking like, will be much stronger than medical.”
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