Cannabis 2023 Review and 2024 Outlook: Growth and Regulatory Shifts
Over the past decade since Colorado first legalized recreational Cannabis in 2012, the Cannabis industry has grown massively despite conflicting state and federal laws. The legal market hit $33 billion in 2023, while polls show 70% of Americans now support full federal legalization.
While various sectors of the US economy have been turbulent over the last couple of years, the industry still experienced some growth in 2022-2023. Industry analysts and advocates remain optimistic about the potential for significant growth in the coming years, particularly if the long-awaited federal regulatory changes related to Cannabis classification and interstate commerce are implemented. These changes could lead to substantial job creation, increased tax revenues, and a boost in overall economic activity.
In this guide, we will provide an analysis of key Cannabis industry trends from 2023 and outlooks for 2024, including:
- Recap of market growth, policy changes, and challenges in 2023
- Market size projections and growth predictions for 2024
- Potential impacts of federal Cannabis rescheduling
- Opportunities around interstate Cannabis commerce
- Merger, acquisition, and investment trends on the horizon
- Demand growth for Cannabis ancillary services like specialized accounting
- Challenges still facing the maturing industry
Whether you’re an accounting professional, investor, entrepreneur, job seeker, or simply interested in Cannabis, read on for an insider's view of where the industry has been and where it’s likely heading next.
Reflecting on 10 Years of Massive Cannabis Industry Growth Since Legalization
It's remarkably easy to lose sight of just how profoundly and rapidly the regulatory environment and business climate have evolved for the Cannabis industry when looking in the rearview mirror at the breakneck speed of state-level legalization adoption and corresponding market activity over the past decade.
Ten years represents an exceptionally condensed period to transition any previously black market underground vice into a modernized, professionalized licensed economic engine powering hundreds of thousands of legal jobs, billions in tax receipts, and layers of ancillary economic multiplier effects.
This swift public policy pivot towards accepting the inevitability of consumer demand for Cannabis, combined with acknowledging the public health failures from criminalized supply, led more progressive state legislatures and voters representing 100+ million Americans to proactively enact appropriate safeguards for medical use and regulated adult-use access rather than cling to outdated propaganda.
What seemed nearly impossible not long ago from a federal prohibition standpoint has manifested quickly into a semi-mature industry at the state level. However, the business climate has yet to reach anything close to stabilization while still saddled with irrational illegality federally and lacking tested playbooks for navigating unique operational challenges unseen elsewhere.
The following growth statistics and details underscore just how monumental the Cannabis industry ascendance has played out since Colorado first permitted full retail sales back in 2014. There is no historical precedent or mature market blueprint to follow making the progress in just under a decade even more incredible.
Public Opinion Shifts as More States Legalize
A Gallup poll in 2022 found a record-high 68% of Americans supported full federal marijuana legalization, compared to just 12% in 1969. Much of this shift correlates with more states enacting their own medical and recreational laws, showing citizens that regulated Cannabis markets can work.
As of 2023, 37 U.S. states have legalized medical Cannabis, while 24 states allow recreational/adult-use sales. A decade ago in 2013, only Colorado and Washington had legalized recreational use, joined by just 18 other medical states. The current map would have been unthinkable back when federal prohibition seemed set in stone.
State-level legalization has succeeded in raising tax revenues, creating jobs, helping patients, and more without causing major public health or safety issues so far. This real-world implementation is rapidly eroding the decades-old “Reefer Madness” opposition arguments.
Predictions on Cannabis Market Size Growth
Beyond shifting public opinions, the economic impacts have also defied expectations. In the United States, the value of the Cannabis market was estimated at $13.2 billion in 2022 and is forecasted to expand, potentially reaching $40.1 billion by the end of the forecast period.
The ancillary market, which includes industries related to Cannabis such as lighting, packaging, consulting, and branding, is also experiencing growth. While specific figures for the ancillary market are not readily available, the overall expansion of the Cannabis industry suggests a positive impact on these related sectors.
Along with the increasing acceptance of Cannabis use, new product categories being sold recreationally such as edibles, concentrates, and topicals are gaining popularity. As rescheduling Cannabis becomes a very real thing, Federal legalization for medical use can open up even more categories and opportunities for revenue growth.
Capital Flows Reflect Growing Investment Appetite But...
As state legalization triggered Cannabis into the mainstream commercial arena, investor hype and dealmaking momentum expanded seeking first-mover advantages despite federal obstacles restricting Wall Street and debt markets. As more states legalize, Cannabis is turning into a real mainstream business. Investors and deal makers are starting to get excited, sensing a new boom industry taking off. Lots of venture money is already flowing into startups, showing early confidence in legal weed's potential.
However, federal laws are still hurdles for normal financing. Banking and Wall Street remain out of reach and constrained until national reform. Still, the cash influx into the industry reveals legalization impacts attracting attention despite admittedly chaotic cycles still unfolding state-by-state.
Current Lulls Accentuate Implementing Operational Excellence First
Recent Cannabis capital availability challenges underscore the imperative for battle-tested operators rather than growth-chasing theorists during such nascency. Smart capital gravitates to executive teams focusing internally on demonstrating sound governance, vital accounting controls, cash flow discipline, and transparent financial reporting - crucial things that are needed for scalability yet are lacking across most marijuana startups. Having a CFO who understands the landscape of the Cannabis industry, what sophisticated investors are looking for as far as financials are concerned, and how to advise on sustainable financial strategies that will serve the business long-term.
Substantial Tax Revenues Despite Restrictions
One of the stronger economic arguments spurring state-level legalization involves redirecting existing Cannabis commerce from untracked illicit markets into regulated systems enabling transparency and appropriate financial oversight. Despite conflicting state and federal tax policies limiting optimal revenue capture, the overall fiscal opportunity remains substantial by bringing transactions into the light. Many analysts highlight material tax receipt potential from various state efforts thus far providing funds for public priorities like infrastructure, health programs, and education initiatives. However, without federal guidance, quantifying precise fiscal impact projections remains speculative. As more states implement some form of legal access and interstate coordination progresses, economic experts expect considerable upside for public coffers if tax policies normalize around Cannabis approaching alcohol and tobacco precedents. But exactly how expediently that potential gets unleashed or what final budget scale emerges hinges largely on the pace of political progress towards workable, stable regulatory frameworks informed by maturing state pilot initiatives.
Mixed Signals for Future Cannabis Growth After Record Highs
Despite incredible progress breaking down barriers thus far, the Cannabis industry entered a challenging transitional chapter over 2021-2023 from the initial early state legalization “gold rush”.
Markets are undoubtedly still expanding quickly overall, but new headwinds have arisen requiring strategy evolution for sustained success.
Capital Flow Slowdown As Investors Seek Lower Risk
Mirroring broader financial markets in 2022, Cannabis capital availability suddenly declined as wary investors moved assets towards safer securities with rising interest rates. This dramatic shift followed several overly enthusiastic funding years.
Viridian reported Cannabis raises peaked in mid-2021 at around $2.5 billion per quarter before slowing below $1 billion. Reduced investment activity persisted despite signals from Congress that legalization is on the horizon, showing macroeconomic conditions largely superseded sector optimism.
They also tracked average Cannabis deal valuations dropped below $100 million, a level not seen consistently since 2019, confirming investor sentiment pullback. Many analysts still see strong long-term potential but are taking a show-me stance expecting better financial execution.
This capital shortage wilted plans for many upstart operators hoping to become regional or national giants. They face renewed focus on fundamentals like cash flow, margins, and managing dilution instead of growth above all else. Survival now depends on rightsizing towards profitability.
Mind-Blowing Cannabis Market Expansion Still Expected by 2030
The global Cannabis market is poised for substantial growth over the next decade, as indicated by various industry reports and market forecasts. New Frontier Data's 2022 U.S. Cannabis Report projects a significant increase in the number of U.S. consumers, with an expected rise “from 47 million in 2020 to 71 million by 2030,” driven by escalating self-reported usage rates. Additionally, Statista's Market Forecast anticipates a robust growth rate of 14.06% from 2024 to 2028, which drives the estimated market volume to US$102.90 billion in 2028.
Furthermore, the Los Angeles Business Journal's Special Report on Cannabis, citing Grand View Research, highlights the expected expansion of the U.S. Cannabis market to compound annually at a 14.2% rate through 2030. These insights collectively support the notion of a thriving global Cannabis market, underpinning the expectation of substantial industry expansion both domestically and internationally over the next decade.
State Cannabis Markets Enable Strong Job Creation
Rapidly growing legalized medical and recreational Cannabis markets across dozens of states have unquestionably fostered substantial domestic employment opportunities spanning both plant-touching operations like cultivators and dispensaries as well as their expansive supplier and vendor ecosystems. With thousands of storefronts and production facilities in place, in addition to scores of ancillary businesses indirectly supported, analysts broadly cite material positive job impacts already realized while additional potential appears probable pending federal policy shifts.
Essential Roles Emerge Across Cannabis Value Chain
While particular occupational statistics and segmented growth figures remain elusive to validate concretely, clear labor demand has formed around essential functions like master Cannabis growers, dispensary store managers, extraction technicians, regulatory compliance personnel, security directors, inventory control managers, and various other operational and administrative support roles.
However, industry employment conditions could face quality and compensation pressures amid intensifying competition if the faster pace of state legalization persists without eventual federal guidelines standardizing workforce stability structures through access to traditional protections and benefits. But for now, the broad-based “green rush” fervor continues to benefit many workers with specialized Cannabis expertise in high demand during such unprecedented expansion activity.
Rescheduling Cannabis Could Accelerate Growth
Possibly the most profoundly positive regulatory adjustment with financial impact potential involves moving Cannabis out of the restrictive U.S. Controlled Substances Act (CSA) schedules totally or into a less stringent classification. This administrative change process differs from outright federal legalization requiring congressional legislation.
Shifting marijuana regulation responsibility separately from the Drug Enforcement Agency (DEA) control opens financial benefits plus research expansion possibilities by acknowledging legitimate medical patient access and state decision rights.
While not fully satisfying advocates seeking complete federal Cannabis descheduling, incremental rescheduling progress remains meaningful and achievable in the short term.
How U.S. Federal Cannabis Scheduling Works Now
Despite growing public sentiment and state policy support for Cannabis allowing regulated adult or medical use access, marijuana remains stubbornly classified as a DEA Schedule I illegal substance ever since the CSA enactment back in 1970. This irrational categorization continues to frustrate industry participants and reform supporters alike.
By definition per DEA, Schedule I classification deems Cannabis as dangerous, open to abuse, possessing no medical utility, and so prohibited except for narrowly permitted research studies. This highest level of drug scheduling puts marijuana in the same group as heroin, LSD, ecstasy, peyote, and other concerning substances lacking accepted health treatments.
Conversely, scientifically questionable yet culturally familiar drugs like cocaine, methamphetamine, and fentanyl "merit" slightly better Schedule II status in the DEA’s flawed eyes, making them legally available under tight restrictions. Big Pharma Oxycontin painkillers containing actual heroin molecule derivatives even qualify as Schedule II.
However, the DEA insists the flowering Cannabis herb remains too hazardous for consumers and patients in legal states to handle responsibly, necessitating total national prohibition. This stubborn unwillingness to modernize despite societal progress leaves the industry filled with unnecessary barriers.
Rescheduling Cannabis Implications
Thankfully, administrative pathways exist allowing science-based Cannabis policy reform without waiting on obstructionist legislators. The key method involves rescheduling through administrative review processes baked into the original CSA wording.
Fortunately, after 50 years overdue for an updated Cannabis assessment, the current presidential administration directed Health and Human Services (HHS) along with Food and Drug Administration (FDA) experts to initiate a review starting in 2021 with formal recommendations expected in 2022.
HHS did deliver their official marijuana rescheduling recommendations in August 2022, conclusively stating Cannabis no longer meets the requirements or criteria for irrational Schedule I status.
While HHS stopped short of advising full descheduling, they did suggest moving marijuana into the less restrictive Schedule III category. Additionally, in the fall of 2023, the FDA also agreed with the HHS report in a memo to the DEA to move to Schedule III. This would allow Cannabis much more flexibility around research plus access similar to approved medical drugs with accepted health benefits despite some risks if misused.
Opportunities and Challenges Still Ahead for the Cannabis Industry
While the Cannabis industry outlook remains highly positive looking ahead to the coming years, there remain several complex open questions and unknowns that could significantly impact the speed and scope of continued growth.
Topics like interstate Cannabis commerce, investment and acquisition trends, demand for ancillary services, as well as ongoing maturity challenges facing managers in the space all have a high degree of uncertainty. The navigating of these issues could either turbocharge growth if handled optimally or restrain the full economic potential if regulatory and legislative bodies lag rapidly evolving public sentiment and state-level momentum.
The following key areas represent massive latent opportunities for the Cannabis industry on one hand but also pose threats if challenging status quo dynamics fail to shift in a timely, reasonable manner. Industry advocates must continue applying pressure across these fronts to smooth the path toward maximizing future commercial prospects.
Opening Interstate Commerce Floodgates
Assuming Cannabis gets rescheduled federally from its current most dangerous Schedule I status, one major regulatory challenge still blocking exponential growth involves interstate sales and distribution.
The segment could balloon exponentially if high-quality products from mature state markets like California and Colorado could ship freely to newly opening state markets rather than each locale needing to reinvent every wheel and learn lessons the hard way. But many complications around branding, licensing, wholesale logistics, tax apportionment, etc. must be resolved first before this scenario materializes to avoid illegal diversion.
If reasonable regulatory guardrails get established, some analysts predict four to five-fold market size explosions almost overnight from interstate policy reforms. This could significantly benefit vertically integrated multi-state operators best positioned to maximize geographical reach.
The opening of interstate Cannabis commerce, while promoting massive market growth, would also significantly escalate the need for proper accounting, auditing, and reporting compliance across state lines. Similar to how pharmaceutical products face tight federal regulatory scrutiny, Cannabis shipped over state borders would likely fall under complex tracking rules and taxes necessitating air-tight recordkeeping. Companies without sophisticated accounting and inventory management systems could quickly run into problems with lost products or tax diversion red flags. This interstate shipping frontier would further advantage large operators with resources to implement robust frameworks preventing issues before arising. But it certainly bolsters the value proposition for accounting professionals to guide clients navigating expansion while ensuring full legal adherence.
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Merger and Acquisition Trends Expected to Heat Up
Despite recent capital crunch conditions putting a chill on deals, many experts expect Cannabis merger and acquisition activity will regain steam in 2024-2025 as rescheduling clarifies regulations allowing institutional capital to re-engage.
Smaller startup brands facing bumpy profitability scaling hurdles may find more stable homes under new corporate parents able to smooth operations utilizing wider reach and resources.
This consolidation could mirror cycles seen in other maturing vice markets like alcohol and tobacco transitioning from local to global enterprises over decades. Surviving independents who successfully professionalized could also attract renewed investor attention when markets normalize.
As mergers and acquisitions accelerate, valuation multiples on well-run companies could expand rapidly thanks to clearer federal guidelines, rescheduling of Cannabis, and re-energized institutional investors. Cannabis businesses practicing disciplined financial planning and transparent reporting should find themselves in high demand. Those establishing accurate cost accounting, documenting operating controls, properly filing taxes, and instilling other public company best practices over the past chaotic years will be rewarded handsomely. Investors know earning potential exists in this sector but need reassurance on execution - companies with clean books and strong governance procedures signal lower perceived risk relative to less buttoned-up competitors. Leadership teams investing in operational infrastructure despite challenging conditions could see substantial valuation premiums as the industry gets on sounder legal and financial footing.
Ancillary Professional Services Demand Growth
While recent choppy public markets may have dampened enthusiasm by those simply chasing the next hot trend, underlying Cannabis industry operating fundamentals remain highly compelling long term. This expanding ecosystem will critically require ever-growing professional services like legal, consulting, logistics, compliance, marketing, etc. to meet client sophistication and regulatory demands over time across every market.
CNBC detailed this “pick and shovel” parallel citing companies supporting industry infrastructure versus directly cultivating or selling Cannabis should keep seeing sustainably high growth without risks facing plant-touching operators. Areas like software, packaging, testing, and consulting may especially thrive if interstate trade flows accelerate as smaller firms need integrated solutions allowing them to punch above weight.
Management Maturity Required to Navigate Ongoing Complexity
Despite optimism flowing from advancing regulatory progress and forecasts for colossal growth runways, Cannabis remains filled with formidable operational challenges that could trip up less disciplined managers. For long-term players, sustainable success necessitates embracing an institutional mindset balancing innovation with pragmatism.
Areas requiring perpetual attention include financial budgeting/reporting, regulatory compliance, tax planning, capital allocation, risk management, government affairs advocacy, and managing talent recruitment/retention amidst workforce skill gaps.
Companies elevating board oversight and implementing robust infrastructure around these critical functions generally prove best equipped to handle industry volatility swings and seize opportunities ahead.
While loose operations and informal policies may have been tolerated amid the “green rush” climate as Cannabis emerged from the shadows, those days will quickly fade as imminent rescheduling demands federal compliance preparedness and institutional investor expectations per other SEC-regulated industries.
Entrepreneurial founders and startup executives wearing multiple hats out of necessity remain commonly given sector nascency. But constructing appropriate managerial separation of duties and elevated board governance now becomes mission critical where before considered nice to have. Investor guard rails and fiduciary duty will only intensify moving forward.
Forward-thinking plant-touching companies as well as burgeoning ancillary services organizations must showcase operational excellence fortifying all facets of accounting, compliance, HR, data security, inventory, and reporting procedures well in advance of expanded oversight.
Top talent leaders driving maturation for this unique industry require creative resourcefulness yet simultaneous commitment to upholding best practices borrowed from heavily scrutinized frameworks elsewhere. Teams focused purely on growth above all else inevitably get displaced by prudent peers building scalable infrastructure mapped to forthcoming expectations.
The Cannabis board rooms and C-suites that populate and steer maturing enterprises will enforce much higher quality standards across functions than lenient founding days. Attracting external capital depends greatly on proving capable stewardship, systems integration, and leadership vision through calculated actions rather than lip service. Companies acting in advance on these dynamics maintain pole position.
Stay Confident But Remain Cautious Amid Marijuana Market Shifts
In conclusion, there are certainly valid reasons supporting mega growth expectations for the Cannabis industry based on extraordinary market expansion and political shifts observed over the past decade. The statistically documented public health and society benefits from legal access relative to unreasonable prohibition policies should continue driving state and federal reform momentum.
However, barriers limiting business stability and mainstream consensus do persist for at least a while longer until full descheduling implementation. Markets don’t move in straight lines and external shock factors - like the recent COVID demand swings and high inflation/interest rate environment - slowed industry velocity and complicated visibility.
Therefore Cannabis participants right now should cultivate "cautious optimism" mindsets. Plan doggedly for big future scale recognizing huge addressable markets remain largely untapped thus far while staying laser-focused on smart near-term financial governance, risk mitigation, and building operational excellence. Disciplined blocking and tackling will set the stage enabling agile strategy pivots sure to come.