Ohio’s Move to Adult-Use Sales Could Be Record-Setting

The approval of retail sales to all adults in Ohio in November may touch off one of the biggest, quickest, and most profitable growth explosions in the history of medical-to-adult transitions.

Biggest: Ohio’s $480-billion medical market (per BDSA’s latest estimates) is quite stunted. Its neighboring states have similar populations, but Pennsylvania’s medical-only market is about twice as large as Ohio’s, and Michigan’s adult-use sales are more than 5x Ohio’s current size.

Fastest: seeing the delays regulators have caused in New York and elsewhere, initiative crafters mandated a September start date that regulators are expected to deliver on.

Most Profitable: Having seen the struggles licensees have faced turning a profit in unlimited-license states like Oregon and Oklahoma, Ohio will conduct a series of limited licensing rounds over the next couple years while liberalizing rules at all levels.

“There’s over 100 operators right now, and the new law will bring another 100,” said Jared Maloof, CEO at Standard Wellness. “We think that there’s going to be significant capacity for competition while not providing a license to anybody who applies. So, we think that a really nice balance was struck.”

Maloof will be speaking on a panel at “Cannabis Connect: Ohio Edition”, the networking event being sponsored by Global Cannabis Times March 27 in Cleveland (here’s the details), along with Bill Williams, president of BeneLeaves and Dave Haley, president and CEO at Ancient Roots. Standard Wellness became Ohio’s first vertically integrated company in 2018 through its retail sister company, The Forest. Beneleaves has been a stand-alone processor since January 2019. Ancient Roots has added processing to its original Level 2 (up to 6k s.f.) cultivator license.

Along with the homegrown licensees, Ohio has been targeted by the national MSOs in anticipation of adult-use legalization. According to a recent from Zuanic & Associates, “There are 110 stores, with 45 in the hands of publicly traded MSOs…six MSOs have 5 stores each (Acreage, Ascend, Cannabist, Cresco, Green Thumb, Verano); Trulieve and Vext each have 4; Ayr has 3; Curaleaf has 2; Jushi and MariMed have one each.” Zuanic’s analysis shows the value upside of Ohio’s adult-use legalization is enormous, at an assumed 35% EBITDA margin and a 7x multiple, especially for the smaller MSOs.

The upside for local licensees could be even bigger than for the MSOs, especially because “for the first two years, Issue 2 lets the medical licensees expand to meet demand,” Haley pointed out. “It’s about to get exciting here in about 10 seconds,” said Williams.

That view is backed up by the March 20 release of BDSA’s latest state-by-state spending forecasts, showing the $480-million market jumping 44% to $690 million with just a partial year of adult-use sales in 2024, going on to $2.1 billion in 2028 at a 34% compound annual growth rate.

On the revenue front, more stores will allow Ohio retailers to claw back some of the business going to border-region stores in Michigan. But the panel will also take a look at the many detailed regulatory changes coming (or that panelists hope will come) with the legalization of adult-use sales.

On the profitability front, Beneleaves and Ancient Roots are hoping to be allowed to go vertical, which Standard Wellness already is – or is moving toward – in its expansion states of Missouri, Utah, Maryland, and Virginia. “If we had to do it all over again, verticality is where you want to be,” said Williams, citing the control it gives a processor of the quality of biomass it uses, and the direct access to consumers that a retail presence brings a company.

But there’s an even more fundamental change afoot: “In Ohio’s medical program, one cannot combust,” Haley noted. “With adult-use, that goes away.”