Hopeful Cannabis Sales Data an Encouraging Sign for Insurance Specialists

February 22, 2023 by

News has been rife with dreary tidings for the cannabis industry over the past year, but a surprisingly encouraging outlook has emerged among the persistent din of downward harbingers like a flower glut, investment funding shrinkage, and layoffs.

Industry sales are expected to continue to rise this year – though not so much for those focused on the Western U.S., where most of the nation’s mature markets are and new data points to negative short-term trends.

Beneath it all, both the good and bad in the data may ultimately be positive indicators for insuring cannabis specialists, according to two brokers who have been in the space for years.

U.S. legal cannabis sales may grow 14% by year’s end, while overall global growth and spending is on track to yield a market size of $59.6 billion by 2027, a report out today from market intelligence and data provider BDSA shows.

On the face of it, the report appears to run contrary to what has been widely characterized as an end to the “green rush” years for cannabis, as profits fall, stocks of publicly traded companies slide and jobs disappear.

However, what the positive data in the report reflects is the strength of an industry that continues to draw new consumers with growth in continually emerging new markets and an abundance of new cannabis- and CBD-related products coming to the market.

Roy Bingham, cofounder and CEO of BDSA, acknowledged spending slowed “significantly” last year.

“Despite this, our updated forecast predicts strong growth in the U.S. driven by developing markets, particularly the adult-use markets of Missouri, New Jersey and New York,” he said in a statement.

Data in the report should hearten anyone doing business in the East, Midwest and the South.

Four of the top five U.S. markets are non-Western and relatively newer: Florida, Illinois, Massachusetts and Michigan. Sales are expected to increase in those states by a combined 9.5% in 2023, adding nearly $770 million in new spending, according to the report.

Emerging markets and anticipated new markets are expected to contribute heavily to industry growth. Markets promising rapid sales growth include Montana, which launched adult-use sales use sale in 2022, and Missouri, which grew by 84% in its second full year of medical sales, the report shows.

The report anticipates the birth of a few new adult-use markets by 2027, including Maryland and Oklahoma in 2024, Florida and Ohio in 2025, with Hawaii and Minnesota also possible.

The big Western U.S. mature markets – California, Colorado, Nevada, and Oregon – saw a 16.5% combined cannabis spending drop, the report shows. A national cannabis glut, which caused nationwide cannabis prices to slide was credited as the leading cause of the drop. The glut particularly impacted markets in the West, which some believe may be overbuilt or too quickly grown.

The BDSA report does bear some good news even for those regions. It forecasts a return to growth in 2024, though that growth is expected to be slower than it was before the downturn.

Insuring cannabis specialists began feeling the negative impact of the downturn last year.

Stephanie Bozzuto, co-founder and president of marketing at Cannabis Connect Insurance Services, found herself too often talking to price-sensitive buyers eyeing insurance among the many expenses they were looking to cut.

And for the first time since she got into the insuring cannabis specialty in 2016, the year California passed its adult-use legalization law, she was watching clients go out of business. Some of her customers were forced to issue notices of cancelation to their carriers, as they were consolidating, going out of business, or just didn’t have the money to pay insurance.

“Last year was an extremely hard time for our agency,” she said.

Norm Ives, the cannabis practice leader for Amwins Insurance Brokerage LLC, said the report is “very much in line” with what they are seeing in the market and their expectations for the years ahead.

He believes the outlook for the market as a whole looks good, but the legacy markets have the potential to have a rough ride over the next couple of years.

“I think the losses in the legacy markets might even be understated in this report,” Ives said.

He has been hearing from operators who are experiencing up to a 30% decrease in revenues.

However, the cannabis shakeout may be weaving a silver lining for insuring cannabis specialists.

“We’re seeing acquisitions,” Ives said. “We’re seeing the bigger businesses becoming bigger. We’re seeing cannabis becoming big business and becoming smarter big business.”

Firms like Cannabis Connect saw many customers close, but the firm also saw many of their existing customers get stronger, growing through acquisition, or becoming more sophisticated and better at doing business.

A number of the firm’s clients that were smaller startups have emerged in 2023 as operators with multiple locations, increasing their insurance needs. These businesses are now seeking to make better decisions, having moved past the learning curves faced by an emerging industry, such as handling regulations, being in compliance, and streamlining operations, Bozzuto said.

Based on sales figures so far in the first quarter, Bozzuto said Cannabis Connect is “having a record year financially.”

“I think this year and going forward we’re going to see a lot of people who have learned a lot of lessons along the way and learned to do things differently,” she said. “I think that’s what we really need to catapult things to the next level.”

At the height of the green rush cannabis saw “every single person enter the space,” but the truth is that in any industry, not everyone can survive, Bozzuto said.

“Now is about clearing things up and really just leveling up,” she added. “We are definitely acquiring large accounts.”

The BDSA market report also offers some positive takeaways from a broad perspective – and encouragement for anyone interested in insuring cannabis internationally.

The Canadian market is expected to experience 12% overall growth this year, growing into a $5.7 billion market by 2027.

The forecast calls for the international cannabis market beyond the U.S. and Canada to be driven by new adult-use markets in Germany and Mexico, leading to a compound annual growth of 40% to $9.5 billion in 2027.

Limited medical cannabis programs are expected to expand primarily within the European Union and Latin America, according to BDSA.

Related:

Popular Today