In the nearly nine months since recreational cannabis sales began in Connecticut, the market has grown quickly — already surpassing the number of dispensaries per person that neighboring Massachusetts had within its first year.
Many of existing dispensaries sell cannabis for medical use only, while a few sell recreational cannabis and others have hybrid licenses, meaning they may sell both.
In 2019, one year into Massachusetts’ legal market, the state’s Cannabis Control Commission said there were 33 dispensaries. With an adult-use census count of roughly 5.2 million people, each dispensary served about 173,000 people on average.
But economist Fred Carstensen said that the rapid growth in Connecticut is not concerning, despite Boston Globe reports that Massachusetts’ cannabis market is facing strife from oversupply and over-licensing.
“It’ll take three to four years to see how the market develops,” said Carstensen, a professor at University of Connecticut and the director of the Connecticut Center for Economic Analysis.
Keeping tabs on the industry
Connecticut’s cannabis market can, and will, expand, according to Kaitlyn Krasselt, the communications director for the state’s Department of Consumer Protection, By this time next year, she said there will be 69 dispensaries in the state.
“An additional 46 hybrid and adult-use only retailers have obtained a provisional license and are in the pipeline to open in the next year,” she said in an email.
Krasselt said that the state observes the cannabis market to protect it.
“The department continues to monitor available supply in our state, as well as analyze market trends and related issues in other states, and will consider all factors when determining how many licenses to make available in the next lottery round, as well as future lotteries,” she said in an email.
Similarly, Krasselt said the DCP will continue its “ongoing analysis of the market.” And as the state government checks the expansion of Connecticut’s adult-use cannabis market, Carstensen said local governments do the same.
He said it wouldn’t matter if Connecticut’s retail cannabis scene was over-licensed, under-licensed, or just right.
“Every municipality has the right to say yea or nay (to retailers),” Carstensen said.
But he said an estimated 69 cannabis retailers in the Nutmeg State’s pipeline will make the bigger picture clearer.
“(Then) it’s pretty much available to everybody on a relatively short-travel basis,” Carstensen said. “Then we’ll actually know what the market is.”
Darren Weiss is president of Verano, which grows and sells cannabis and related products nationwide, including in Massachusetts and Connecticut. Verano owns CTPharma, one of the state’s four major cannabis growers. He said Connecticut runs a tight ship; he’s not worried about the cannabis market in Connecticut, a state roughly half the size of its neighbor with roughly half as many eligible adult-use consumers.
“Connecticut started out, and remains now, one of the most highly-regulated programs in the country,” he said. “There were a much smaller number of licenses relative to population.”
Variables in understanding CT’s market
Carstensen said legal cannabis options are likely pulling some consumers from the illegal, unlicensed cannabis market; Connecticut’s adult-retail sales in January closed at $5.1 million with over 114,000 products sold, according to state data
In August, roughly 355,000 adult-use products turned a much higher $14 million.
Carstensen said it’s difficult to weigh interest in legal cannabis sales against black market cannabis: dealers aren’t lining up to report their illegal sales to the state.
For this reason, Carstensen said it’s also difficult to quantify if Connecticut’s retail gains come from brand new cannabis users or consumers turning to the legal market instead of the illegal one.
“If it’s new customers?” he said. “Maybe demand is much more than we thought it would be.”
What Carstensen said also can’t be quantified is how many Connecticut users are getting their supply from Massachusetts.
According to data from each state’s cannabis regulators, Massachusetts’ cannabis flower costs much less than Connecticut’s does.
In June, a consumer could buy 3.5 grams of cannabis flower in Connecticut for about $40. In the Bay State? The price was half, roughly $20. Experts said a more stable price point is $30 to $35.
While $20 cannabis flower can appeal to consumers, experts say cheap cannabis everywhere is no good. Market oversaturation jeopardizes the longevity of cannabis businesses, which isn’t beneficial to the owners and operators.
This is especially true for Connecticut, where stakeholders in cannabis businesses have roots in communities disproportionately targeted by the war on drugs.
Avoiding these harmful effects is why the DCP exercises caution.
Tom Peake, an economics and public policy senior research analyst at the Donahue Institute at the University of Massachusetts Amherst, agreed that interstate commerce is a real aspect of cannabis profits.
He said while each state that legalizes cannabis use monitors and regulates its industry, cannabis moves across state lines, not just within them.
“For the first few years of operation (in Massachusetts), and even to this day, a lot of the license plates you see around (retailers) are Connecticut license plates,” Peake said.
Carstensen said he sees the appeal of buying cannabis in other states, especially now that Massachusetts’ cannabis is so cheap.
“It’s an attractive price,” he said.
But as more states legalize, consumers will cross state lines to buy cannabis less frequently, Peake said.
“To say nothing of Connecticut, I think Massachusetts is seeing diminishing returns from that,” he said. “As more places legalize it, I have to imagine we’re not seeing very much traffic from New York.”
Carstensen said that as the Nutmeg State’s market matures, retailers will “pull that business back into Connecticut when we become more competitively priced.”
Peake agreed that “as (more Connecticut retailers) open up, we can probably expect the vast majority of those folks to be buying cannabis in Connecticut.”
And Carstensen said that as much as interstate cannabis purchases skew understanding Connecticut’s market, it also serves as a check on oversaturating the Nutmeg State’s cannabis economy.
He said Massachusetts attracting consumers from Connecticut creates conservative estimates of demand.
Industry limits on oversaturation
Weiss, the president of the Nutmeg State’s largest cannabis grower, Verano, said Massachusetts regulators mishandled the state’s cannabis market.
“What Massachusetts did is it gave away too many licenses,” he said. “And primarily on the supply side. You’ve got, you know, very strong demand in Massachusetts…But you’ve got too much supply.”
And that’s coming from the state that Weiss said is one of the “highest consuming markets out there.”
According to a spokesperson from the Massachusetts Cannabis Control Commission, since 2018, the Bay State has licensed 320 adult use-retailers as of Sept. 15 — two of them are ZenLeafs, one of Verano’s retail brands.
Aside from Connecticut’s local, statewide and commercial safeguards against an oversaturated market, Weiss said his company employs in-house strategies to prevent oversaturation.
He said Verano isn’t going to wait for the market to mature to make business decisions, so it maintains “flexibility” as a manufacturer, reseller, wholesaler, and cultivator of cannabis products and flower.
“By dedicating more of our own shelves to our own products, we are able to retain more margin,” Weiss said. “As a result of which we are able to provide more flexibility to the end consumer on pricing and variability.”
Different products mean different ways of selling, he said.
“It enables us, as well, to be more flexible as it relates to promotional activity, discounts, specials, things like that,” Weiss said. “That is the primary way that we deal with oversaturation.”
Regulating the market before it regulates itself
Weiss said that, while heavy-handed regulation goes against “free market principles,” it’s better to let the state correct and regulate the cannabis market. Otherwise, the market would correct itself with retail closures — the “least-preferred method” of dealing with oversaturation, he said.
Regulation is not without precedent, Weiss said, comparing the cannabis industry to how the Federal Communications Commission licenses the airwaves.
And, Carstensen said, if there were too many cannabis dispensaries, “the market will tell us.”
“They’ll close,” the economics professor said.
Krasselt said the state wants to manage the cannabis industry to prevent that outcome.
“We continue to work with the policy makers to take a measured and thoughtful approach to expanding the market in order to create an environment where businesses can succeed while still creating a competitive marketplace for consumers,” she said in an email.
Finding this balance for a Connecticut market means offering enough retail options for consumers but not so many that the market begins to fail.
Therefore, Weiss said Verano is also thoughtful to keep the company’s retailers out of state’s that he said are saturated with cannabis.
“You won’t find ZenLeaf in California, you won’t find ZenLeaf in Colorado or Washington or Oregon, because we’ve run those calculations,” he said.
H/T: www.ctinsider.com
