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The U.S. Cannabis Collective: A State-by-State Overview

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The Cowen Insight

We offer a desk reference for assessing the U.S. cannabis industry on a state-by-state basis, using data-driven insights. We raise our U.S. legal cannabis TAM to $41 bn in 2025, driven by adding adult use sales in New Mexico and Virginia. Federal regulatory change remains the key catalyst. We believe a modified version of the STATES Act is most likely, which would eliminate 280E, add an FET, and allow for banking and capital markets access.

Total Addressable Market Expected to Increase (Azer)

We raise our U.S. legal cannabis TAM to $41 billion (from $40 billion) in 2025, driven by the recent passage of legalization in New Mexico and Virginia. Our TAM also embeds adult use sales in Connecticut, Montana, New York, Pennsylvania, Rhode Island and South Dakota beginning before 2025. This collectively ads $5.4 billion in adult use sales to our 2025 TAM. As a reminder, our TAM also includes the introduction of adult use in New Jersey and Arizona, which we added following the election.

Election Outcomes Paved the Way for Federal Regulatory Change (Seiberg / Assaraf)

As is well understood by now, the outcome of the general election was a clear positive at the state level, with 100% of ballot measures being approved. The 2020 election results were a key driver in raising the probability of change at the federal level, given Democratic control of Congress and the White House. We believe there is a path for a modified version of the STATES Act to pass (more herein). In addition, we believe there is additional room for Connecticut and Rhode Island to legalize adult use in 2021.

M&A Increases MSO Geographic Exposure (Azer)

2020 gave way to increased M&A activity. It was transformative year for multi-state operators (MSOs). They broadened geographic exposure and layered in assets that would boost profitability by virtue of establishing vertical operations.

Access to capital has become increasingly favorable for MSOs given strong profitability. We expect to see elevated levels of M&A as operators seek exposure to states that are: highly populated, limited license in nature and / or transitioning to adult use. 2021 should see continued market consolidation. Strategic geographic expansion remains a focus for several companies.

Video Transcript

Hi. I’m Vivien Azer, Cowen’s Cannabis, Beverages & Tobacco Analyst coming to you today with our Ahead of the Curve® deep dive on the U.S. cannabis market.

We’re raising our estimates for 2025 to $41BN from $40BN. Recall we had already raised our estimates last year after the U.S. election from $31BN to $40BN.

In this report, you’re going to find insights from our policy team as well as deep dives on all of the major states and operators in the U.S. cannabis landscape. In addition, we’re initiating coverage of three U.S. operators. We hope you enjoy the work. Thank you.

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