Editor’s note: This is part of a series of articles based on panels and presentations during Insurance Journal’s 2020 Insuring Cannabis Summit on Nov. 19.
There’s big money, and big opportunity for cannabis service and product providers, such as insurance professionals, in newly legal states.
A clean sweep in state ballot initiatives, with Arizona, Montana, New Jersey, and South Dakota all passing adult use initiatives, and Mississippi passing a medical initiative, could translate to roughly $6 billion in revenue over the next five years, according to Roy Bingham, co-founder of BDSA, a data analytics firm focused on the cannabis industry.
The newly legal states could push legalization laws being considered in neighboring states, he added.
“And that’s just the direct impact,” Bingham said. “That’s not the indirect impact of the fact that New York will follow suit with New Jersey, and Connecticut.” Other states in the South are also likely to follow suit, he added.
Bingham was speaking during the “State of the Cannabis Market: Looking Forward to 2021 – Beyond COVID & the Elections” panel. The panel was hosted by Chris Boden, executive vice president of Flux Insurance Services. Also on the panel were Morgan Fox, media relations director for the National Cannabis Industry Association, and Ethan Chelli, associate vice president of the cannabis unit for insurer Golden Bear.
The panel covered everything from the impact of the elections on the market, to COVID-19, to insurance capacity.
BDSA, which gets point-of-sale transactional data from thousands of dispensaries, anticipates growth this year in the industry of roughly 33%.
“And so, we’re going to see an industry in the US about $16.1 billion in consumer sales this year, up from about $12.1 billion last year,” Bingham said. “And then, when we think forward to 2021, it’s a continuation of that trend. Our current projection’s about $19.5 billion. But I think we’re low, actually, because during the COVID era, what we’ve seen is a significant acceleration of sales in the mature states.”
Most mature states are outperforming projections, including Colorado growing at over 20%, Oregon growing at over 30%, and Arizona growing at 48%, according to Bingham.
The next step is “the mainstreaming of the industry.”
“So, we now have in the adult use states, which has just expanded now by three more,” Bingham said. “We get to now more than 15 adult use states. We’re talking about 33 or 35% of the adults in those states have consumed cannabis in the last six months. So, it is not a tiny minority of the population that is becoming very mainstream. And that is the engine of growth for the industry going forward. And then, professionalizing, of course, of the industry. Significant capital has been brought in.”
A “clean sweep” in state ballot initiatives could set the stage for federal action, according to Fox.
“When we’re looking at changes in potential federal law, I think it’s really important to point out that, because of those four states passing adult use initiatives, we now have one in three Americans living in a state with an adult use law,” Fox said.
Larger Wins Than Expected
Fox’s other take-home was that adult use initiatives passed in what some would consider mostly fairly conservative states, and by larger margins than a lot of people expected.
“New Jersey is an excellent example of positive signs for a number of reasons,” Fox said. “If you look at all the initiatives before this year, the one that’s won by the highest margin was California with 57%. New Jersey passed with 10% more than that in just four short years, which is about where the national average is, but generally, not where ballot initiative test, because they get much more specific.”
The fact that two thirds of New Jersey voters green-lighted cannabis is a sign of how fast things have moved in the last four years, he added.
“Regionally, we can absolutely expect a win in the New Jersey to accelerate what other states in the area are doing, particularly, New York, and Pennsylvania, but also Connecticut, Delaware, Rhode Island, and even Maryland,” Fox said.
From an insurance perspective, one area that has been a pain point is a lack of capacity, since many carriers have been staying on the sideline due to cannabis still being considered a federally illegal substance.
“There’s only five or six pretty continuous major players in the industry nationally on any level,” Chelli said.
With more demand, high sales revenues, and larger values, in general across the industry, he added, “it’s becoming more and more difficult for a large scale capacity operator to obtain limits to satisfy any of their commercial needs, and risk transfer.”
Bingham also addressed the long-term impact of COVID-19 on the cannabis marketplace.
Sales became very erratic in the early period of lockdown, and then normalized and continued forward with “sustainable growth across the board,” according Bingham.
The industry also took a technological leap thanks to the pandemic.
“So, the industry rose very rapidly to the challenges,” Bingham said. “In many states it was possible to order online for pickup, or delivery. That has become much more common in the major states now, and has become a very popular trend for consumers. And a number of the online ordering systems have gathered a significant amount of both consumers, and data about the consumers, which now means, of course, that there’s a lot more text-based marketing, and other proactive initiatives in order to get consumers to come back, or make it a habit to come back to your particular retail location.”
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