July 2020 - Cannabis Retail Sales Exploding
Written by: Eli C. Neal, CPA, ABV, CFF
The Portland Business Journal announced that Oregon cannabis sales notched another monthly record in July 2020, at just over $106 million. That is compared to sales of only $73 million the year before in July 2019 – a 45 percent increase! July 2020 was the third month in a row with cannabis sales over $100 million!
It seems clear that COVID-19 has had a positive impact on the cannabis industry. There appears to be three major reasons:
People have been ordered or strongly encouraged to stay at home;
At the same time, there has been a sharp increase in unemployment figures, causing more people to be at home, with more time on their hands; and
The federal government passed a stimulus package giving the unemployed an extra $600 a week. This additional assistance, however, expired at the end of July.
One of the most significant developments for the cannabis industry to arise from COVID-19 is the growing recognition that cannabis businesses provide important services to citizens of legal cannabis states. Despite the stay at home orders, 25 states declared marijuana dispensaries to be essential services. The ability to stay open during the pandemic has led to increased sales volume and increased prices around the state and country.
Marijuana Business Factbook projects that retail cannabis sales (medical and recreational) in the United States will pass $15 billion by the end of 2020. This would be a 40 percent increase over 2019 sales and Marijuana Business Daily points out that $15 billion is more revenue than the NBA, toothpaste, and hard seltzer markets generated in 2019 combined!
While COVID-19 has had a positive effect on the cannabis market as it relates to sales and revenue, the industry also saw a notable number of larger M&A transactions falter and fail during the height of the pandemic. However, as restrictions loosen and markets begin to recover, many believe that the M&A market in cannabis will heat up, in light of increasing valuations resulting from the sales booms in many jurisdictions.
It will be interesting to see if strong cannabis sales continue as the country shifts to more “normal” operations. In Oregon, cannabis is already a major economic and societal force.
Even before COVID-19, more states appeared to be on the path toward marijuana legalization. COVID-19 may speed up the legalization process. Many states are expecting a large budget shortfall in 2020 and 2021 because the decrease in business activity will lead to a decrease in taxes collected. The large sales tax that can be levied on cannabis sales may be too attractive for states to pass up.
It seems like there must be a tipping point where the number of states with legal cannabis will give way to federal legality. 11 states have legalized the recreational use of cannabis and an additional 16 states have decriminalized cannabis use. Only 3 states do not allow cannabis for medical use.
Federal legalization would eliminate the onerous 280E tax and the patchwork of state laws and tracking. Some point out that federal legalization could hurt Oregon growers if the Oregon retail market is flooded with cannabis from California and other states, but it would also allow Oregon growers to sell into other states. If Oregon can develop a reputation for premium cannabis, federal legalization could be a huge boost to the industry!
The Oregon cannabis market continues to evolve. Laws change, regulators shift perspectives, and consumer preferences can vary. As it evolves, the valuation of cannabis businesses and accounting work surrounding the litigation must be dynamic as well. Seek CPAs who can help you navigate changing paradigms. For assistance in Portland, Oregon, and throughout the Pacific Northwest, you can count on Cogence Group to be up to date on the cannabis market. Let us know if we can help you! Please give us a call at 503-467-7903!