Whitney Economics Estimates US Cannabis Production Surpasses 48.8 Million Pounds

According to a new report by Whitney Economics, the total production of marijuana in the United States exceeds 48.8 million pounds.

The data included in the "2022 US Marijuana Supply Report" covers both legal and illegal markets and spans all product types, such as flowers, concentrates, and edibles.

Beau Whitney, founder and chief economist of Whitney Economics, has stated that the total supply has slightly increased compared to 2021. He added that the supply and demand are well balanced this year.

Whitney stated that some growers in Northern California and Southern Oregon had successful harvests and planted more crops, "but the typical practice is if they have an oversupply one year, they will not plant as much the following year. This has been confirmed through my interviews in legacy fields and with regulatory agencies in multiple states.

According to Whitney Economics, the total sales of legal marijuana are expected to reach $29.3 billion by 2022 and $81.6 billion by 2030. The company also predicts that starting in 2026, the legal supply will surpass the illegal supply.

Related: These eight states sold $12.8 billion in adult-use cannabis in 2021.

Whitney stated that if the current legal cultivation capacity in the United States reached 100%, it would be approximately 1.5 times the total demand for cannabis in the country.

Whitney stated that some believe "unlimited demand, unlimited permission - this is the best option," but Whitney Economics strongly opposes this view. While it may be applicable to a national market, in the current context of isolated systems within individual countries, it can easily lead to overproduction and a surplus of supply compared to demand.

Michigan serves as a perfect example of the current state of the marijuana industry in states like Oregon, Colorado, and California. With supply outweighing demand, prices are being driven down, resulting in cutthroat competition that harms small businesses, women-owned businesses, and minority-owned businesses, ultimately squeezing out profits. However, multi-state operators (MSOs) are benefiting from this situation as they have the resources to sustain fierce competition and acquire necessary funds.

Whitney Economics has proposed to regulatory agencies an annual adjustment of supply capacity based on the schedule of each project, according to Whitney.

By avoiding the risk of oversupply, this creates a healthier, stronger, and more successful market," stated Whitney. "The purpose of this approach is to encourage consumers to enter the legal market because the prices are reasonable, without causing operators to fail. Therefore, it is a modified limited licensing model rather than an arbitrary one. The countries we have been discussing this with are very interested in learning more about the model.

Whitney stated that the state of Illinois is an example of a state that could benefit from more licenses. "They do have limited licenses there and they just need more. They need more supply, they need more opportunities," he said. "They limit the amount of retail stores so consumers don't have as much access. They just say, 'Well, I'm not going to drive 30, 40, 50 minutes to get marijuana when I can get it quicker through illegal channels.'

Therefore, our recommendation for the state of Illinois is to increase supply capacity and the number of retail stores, in order to make the produced supply more accessible to a larger number of consumers.

According to Whitney, the growth projections outlined in the new report assume that states with medical or adult-use programs will increase to meet the demands of consumers and patients. Additionally, cannabis will become more normalized, either through federal legalization or interstate commerce.

He said that inflation may affect the future supply and demand of marijuana and has already started to impact the decline of consumer behavior.

Furthermore, due to oversupply in many of these states, prices are decreasing. As a result, retailers may sell the same amount of marijuana but at a cheaper price. The amount consumers are spending now is not entirely the same," Whitney said.

But where inflation really hits the cannabis industry is in the startup costs," he said. These costs include facility construction, PVC piping, HVAC systems, and more.

According to Whitney, in mature markets, people are buying existing businesses instead of creating new ones, so inflation won't play a role in the building industry's inflation. However, in new markets like future New York, New Jersey, Maryland, Missouri, and Pennsylvania- states with high populations- the growth rate of the entire market is significant. These markets might restrain sales, not because demand is absent, but because supply is scarce, and operators have a difficult time starting up.

Related: The decrease in marijuana prices exacerbates inflation in the market.

Whitney stated that the future that the industry needs is a transition from independent supply chains in each state to allowing marijuana businesses across the country to collaborate legally and compliantly.

At the federal level, there is a compelling case being made for some more prominent issues, particularly with regard to the SAFE Banking Act, interstate commerce, and tax reform under Section 280E - all of which impact the industry," Whitney stated.

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