These Two States Are Poised To Be The Next Big Cannabis Markets

With federal prohibition still alive and well despite record public support for marijuana legalization, the cannabis industry in the United States remains a state-by-state business. The inability to cross state lines has led to a web of complex and disparate state laws and regulations for businesses to navigate.

This forces cannabis producers to recreate their entire infrastructure in every new state, rather than scaling up production and shipping products across the country, which impedes their ability to build economies of scale enjoyed by all other businesses.

Retailers generally pay higher wholesale prices because of this, leading to higher prices for consumers at the register.

The state-by-state nature of the U.S. industry has created huge differences in market dynamics from state to state.

A number of factors contribute to the attractiveness of a state market for businesses. Does the state have a limited number of licenses or can any qualified applicant obtain one? Does the state allow for medical or adult-use sales? Does the state ban the sale of smokeable products? If it is a medical marijuana state, what are the medical conditions that qualify someone to become a patient, and does that list include chronic pain? Is the market saturated or is there room for growth?

While much of the media attention goes to highly developed and saturated adult-use markets like Colorado, California, and Washington, the public markets tend to offer the highest valuations to companies with operations in more limited-license states, often with medical marijuana laws that have room for growth and expansion. It is why companies with operations in places like Florida and New York tend to enjoy higher valuations than their counterparts on the West Coast, despite generally showing lower annual revenue in more restricted markets.

So what are the next state-legal markets likely to excite the capital markets?

Looking ahead to the next couple of years, two states stand out as likely the next big marijuana markets: New Jersey and Illinois.

Both states have followed a remarkably similar path toward full legalization, with Illinois a near mirror of the process in New Jersey, only one year behind.