What went right, what went wrong, and what went sideways: 2022 In Cannabis
The past 12 months have been many things for the cannabis industry, but uneventful is not one.
Since December 2021, the U.S. cannabis industry experienced a wealth of both highs and lows, and heading into next year, it is poised for both more growth and painful contraction, several industry experts agreed.
But as 2022 comes to a close, it’s worth a quick look back at some of the milestones the year has wrought for the turbulent marijuana trade and its participants.
What Went Right
Maryland and Missouri legalized adult use.
These two states were the only ones out of five ballot measures in November to succeed with voters, but they bring the new tally of U.S. states that have legalized adult-use cannabis to 21, along with Washington, D.C. and two U.S. territories: Guam and the Northern Mariana Islands.
The victories were another reminder of the overwhelming popular sentiment in favor of liberalizing marijuana laws, and according to the Marijuana Policy Project, it’s the sixth straight national election that’s held at least one statewide victory for cannabis reform.
Six new U.S. state recreational cannabis markets launched.
In chronological order:
- Montana launched its recreational market on New Year’s Day 2022
- New Mexico followed on April 1
- New Jersey was close behind on April 21
- Vermont joined the adult-use sales crowd on Oct. 1
- Rhode Island launched on Dec. 1
- New York is bringing up the rear, with its anticipated launch on Dec. 29
That’s a huge amount of new business opportunities and markets for the industry to develop in coming. years, particularly on the East Coast.
President Joe Biden launches rescheduling review.
When the U.S. commander in chief issued an order in October to pardon nonviolent federal cannabis convictions, he also kicked off a lengthy process that very well may result in the legalization of marijuana.
The problem is, nobody really knows how long the process may take. What’s also unclear is if the administration will choose to move cannabis from its spot on the Schedule 1 list of federally controlled substances to Schedule 2, down to the least restrictive category of Schedule 5, or remove it from the list altogether.
Some political observers believe it only makes sense for the administration to issue a decision before the 2024 election, meaning that marijuana could be legalized in the U.S. within another two years.
Congress passes medical marijuana research bill.
Speaking of the federal government, the one piece of cannabis legislation did manage to get through Congress this year and signed into law – the first pro-cannabis bill to make it that far since the plant was banned under President Richard Nixon.
The Medical Marijuana and Cannabidiol Research Act was signed by Biden the first week of December. Though many stakeholders derided it as a symbolic victory since cannabis bills of far greater consequence died without hearings, the bill’s success irrefutably represents solid progress for the legalization movement.
What Went Wrong
Every other congressional cannabis bill died.
At the end of the year, a lot of industry insiders were still bullish on the chances of the SAFE Banking Act, but it was all for naught in the end, as Senate Minority Leader Mitch McConnell was able to withhold key GOP support for including the measure in an omnibus spending bill.
Another much-touted bill, the Cannabis Administration and Opportunity Act, never even received a hearing, despite being sponsored – and hyped for months – by Senate Majority Leader Chuck Schumer. Now, given that Republicans are taking over the House of Representatives next month, the chances of getting a similar legalization bill through both chambers have shrunken considerably.
In addition, despite the Democratic-controlled House approving the MORE Act once again, the Senate sidelined the bill and it never got a vote or a hearing.
Ballot measure defeats in three states.
The cannabis movement suffered the largest number of statewide defeats in a decade in 2022, with voters in Arkansas, North Dakota and South Dakota rejecting proposals to legalize adult-use marijuana.
Though there were electoral losses previously, the vast majority of statewide ballot measures to legalize either medical or recreational marijuana have succeeded since 2012, when Colorado and Washington State became the first two to legalize adult use.
The South Dakota defeat in particular was a bitter pill for supporters to swallow, because the state voted to legalize recreational in 2020, but the victory was thrown out after a lawsuit backed by Gov. Kristi Noem succeeded in overturning the results based on a technicality.
Wholesale prices trending down.
The commoditization of marijuana seems to have accelerated through 2022. Wholesale prices hit a national bottom of $955 per pound in December, according to Cannabis Benchmarks, a drop of 26% for the year.
Though the firm forecasts a slight rebound in early 2023, the pain felt by much of the supply chain isn’t likely to dissipate any time soon, and a lot of companies struggled to adjust through the year.
The cannabis industry as a whole seemed to feel a good bit of pain through 2022, with both plant-touching and ancillary companies cutting costs and, in many instances, staff.
Businesses that reported significant layoffs this year included:
- New York-based LeafLink, which shed 80 workers this month.
- California testing lab Sonoma Labworks, which closed down and laid off about 25 employees.
- Massachusetts-based Curaleaf, which laid off 220 employees in November.
- Florida-based Trulieve, which laid off an unknown number of workers in November.
- California-based Weedmaps, which had two rounds of layoffs this year, first letting go about 60 employees in August, and then another 175 in December.
- California retailer The Parent Company, which cut about 33% of its staff throughout the course of the year.
- Seattle-based Leafly laid off 21% of its staff in the third quarter of 2022.
What Went Sideways
New York adult-use launch.
Although New York is set to make good on its pledge earlier this year of getting recreational cannabis sales going before the end of the year, the process has been a hair-pulling one and the future of the licensing program remains up in the air, particularly because of a lawsuit that is trying to overturn a residency requirement for permit holders.
The case has already put the issuance of at least 18 retail licenses on hold indefinitely, as the state tries to combat the lawsuit.
In addition, there’s been a lack of clarity for many of the 36 retail license recipients on when or how they’ll benefit from the promised $200 million in funding to build out their shops. As of the Dec. 21 Cannabis Control Board meeting, there was no news of any specific licensees receiving funding or a shop location from state authorities, although there was an announcement that the first such shop will be located in Harlem.
The situation has forced regulators to pivot hard, and even though sales will launch Dec. 29, it’ll be just a single retailer who is slated to begin sales, a far cry from the minimum 175 retail licenses the state has planned.
California tax reform.
In June, California Gov. Gavin Newsom signed into law a state budget that included, on its face, something the state’s marijuana industry had been clamoring for: state tax relief.
The bill eliminated the weight-based cannabis cultivation tax, and made other significant structural changes to how the 15% excise tax is collected. It was arguably a major industry victory and hailed as such by the Newsom administration.
But in the months since, cannabis industry insiders have said the real-world relief has been minimal, and some are worried about a potential excise tax increase because of marijuana tax revenue shortfalls to state coffers, as well as the possibility that lawmakers could raise the excise tax rate in 2025.
Inflation hit the cannabis industry hard, with impacts that ranged from shrinking consumer spending — which translated to plateauing or dipping sales in mature U.S. state markets — as well as downward trends for company valuations.
Those factors in turn led to price compression on the wholesale market, hesitancy by many investors, and a number of busted merger and acquisition deals that may have otherwise gone through, said several industry experts while linking multiple industry trends together.
The situation also presents opportunity, said Chicago Atlantic Vice President Steve Ernest, noting that bear markets are often when the most shrewd investors start putting money on the table, betting on a long-term rebound. And the financial markets are so tight – with cannabis stocks and valuations at some of their lowest points ever – that there’s nowhere to go but up.
“There’s only upside from here,” Ernest said. “I’m very bullish on the long-term prospects of cannabis. There’s an immense amount of opportunity ahead.”
Investor sentiment and activity.
The year was a mixed bag on the investment activity front for the cannabis industry, with insiders reporting both ongoing deal closures and interest from individual investors, but also more wait-and-see-with-bated-breath attitudes from institutional capital.
President Biden’s rescheduling review announcement on Oct. 6 resulted in cannabis stocks jumping by double digits, noted Matt Bottomley, managing director at Canaccord Genuity.
“If we’re talking about cannabis-focused investors, there’s certainly capital waiting to be deployed, and you saw it with all these types of federal headlines, in terms of how the markets reacted,” Bottomley said.
“When Joe Biden made that tweet a few months ago, the entire sector in terms of inter-days highs and lows, had a 50% swing, in one day. This isn’t one company. This is the entire sector of all public company equity.”
The main takeaway from 2022?
“If you’re not concerned with the stock market or specific timing, I think that everything is moving in the right direction,” Bottomley said. “Whether that’s legalization or de-scheduling, I think it’s all but a certainty to happen.”