jason wilson, Cannabis Research and Banking Specialist ETFMGIssuer of ETFMG Alternative Harvest ETF MJ2023 is expected to be a challenging year for many businesses in the industry.
jason wilson, Cannabis Research and Banking Specialist ETFMGIssuer of ETFMG Alternative Harvest ETF MJ2023 is expected to be a challenging year for many businesses in the industry.
mature and new markets
While some mature markets experienced softening or declines in legal cannabis sales in 2022, newer markets showed strong growth. Wilson predicts this trend will continue into 2023, with slower growth in mature markets such as Canada and continued growth in international markets, particularly in Europe, as Germany moves forward with recreational legalization.
Slower sales growth in mature markets is partly due to competition and lower prices driven by oversupply, according to Wilson.
“Accordingly, the silver lining for operators in mature markets is that lower prices should help drive the legal market away from the illegal market. This may not have an immediate impact in 2023, but should be beneficial in the longer term Overall, both domestic and global markets are expected to continue to experience strong sales growth, despite some regional bumps in the road,” he added.
Catalysts for Cannabis Stocks
Wilson believes the biggest catalyst for cannabis stock prices will continue to be regulatory reform.
He is expected to reintroduce the Secure and Fair Enforcement Banking Act (SAFE) this year, which provides protections to financial institutions and other professional services that do business with state-legal cannabis-related businesses. Additionally, the States Reform Act (SRA), which removes cannabis from Schedule I of the Controlled Substances Act while allowing individual states to determine appropriate cannabis reform, could be reintroduced.
Wilson is also expected to have more clarity on the administrative review process that began late last year about how cannabis is determined under federal law.
However, despite these potential regulatory changes, Wilson warns that cannabis businesses are likely to struggle to compete with the illegal market due to insufficient regulatory reform or a lack of regulatory reform. In the US, a lack of federal reform is burdening cannabis businesses with higher operating costs and effective tax rates.
He commented, “Of course, whether any of this will result in a real improvement in 2023 remains an open question.”
Canada, California, Ontario
In international markets like Canada, heavy taxes and burdensome regulations are putting undue financial strain on cannabis businesses. As a result, operators are struggling to compete with significant and largely unenforceable competition from the illegal market.
While some progress has been made in California and Ontario to help legal operators combat the illegal market, Wilson argues that these challenges are likely to remain until more comprehensive and appropriate regulatory reforms are implemented.
A tough 2023 ahead?
The cannabis industry faces significant challenges in 2023, but there are still some opportunities for growth, especially in new and international markets.
While regulatory reform remains the primary catalyst for cannabis stock prices, operators in mature markets may benefit from lower prices as the legal market takes market share from the illegal market. Nonetheless, the cannabis industry’s ongoing struggles to compete with the illicit market due to insufficient regulatory reform suggest that more comprehensive and appropriate regulatory reform is necessary for the industry to thrive.
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