Why Missouri Had the Best Adult-Use Launch Ever

MISSOURI GENERATED $1.3 billion in legal cannabis spending in 2023, making the “Show Me” state the strongest top-line performer ever of any state in its first year of adult-use legalization. On top of that, most stores are making money and many brands – both local and national – are thriving.

What accounts for the outperformance of the cannabis market in a state whose electoral-college votes have gone to every Republican presidential candidate since 2000? “I believe we were a very mature cannabis space already,” said Mitch Meyers, CEO of The BeLeaf Company. “There are a lot of cannabis users in Missouri. We ended up with a lot of medical cards, over 100,000 pretty quickly. So, that primed the pump.”

But other states with healthy medical markets have floundered during the transition to adult use. There are several factors that made Missouri just the latest politically conservative mid-western state to outperform more liberal states like California and New York when legalizing cannabis. Here are some key numbers, all of which bode well for overall industry growth as legalization moves beyond the liberal pioneer states:

Revenue Jumped to $1.3 billion in ’23 from less than $400 million in ‘23

That nearly $1 billion in growth was by far the biggest first-year growth that any state has generated in the entire 10-year history of the legal industry. By way of comparison, Michigan grew about $300 and Illinois about $400 million in 2020, their first years. California actually shrank by $500 million in 2018. Remarkably, revenue of $1.3 billion already makes Missouri, which is only the 18th biggest state by population, the 8th biggest legal cannabis market.

What do we learn from this? Primarily that you must have enough stores throughout the state to support demand. Missouri wisely decided to license all it’s 200 medical dispensaries for adult-use sales, meaning there were some 32 stores for each million in state population on Day One. In bleak contrast California opened adult use sales in January 2018 with only about 3 stores per million. New Jersey had the same problem in 2022—3 stores per million people. The result: Per-capita spending in Missouri’s first year was $200; California and New Jersey kicked their markets off at $60 per capita.

Average revenue per dispensary in Missouri in 2023 was $6.7 million

In $Milllions

Sources: Global Go Analytics analysis of BDSA (revenue) and Ananda Strategy (store counts) data

That’s a very healthy number, more than double the national average according to Global Go Analytics estimates based on BDSA spending data and store count estimates from Ananda Analysis. Sure, it’s about half of what Illinois stores average, but Illinois has just 11 stores per million. On the other hand, its 2x-4x what Colorado and Oregon stores average with their 100-200 stores per million.

Key Learning here: You want enough stores, but it’s great for retail profitability if there’s not too many. Oklahoma is the model of what can go wrong with too many stores. Michigan may be the best model for Missouri and other new states going forward, as it looks to grow overall to the benefit of growers and distributors, while maintaining healthy average revenue for retailers. Michigan has seen store counts swell to more than 90 per million, about 3X the store-density that Missouri has now, while keeping average revenue-per-store above $3 million.

47% of adults in adult-use states consumed in the past six months

That kind of growth is enabled by a simple factor at work in both Michigan and Missouri: legalization brings in more consumers. When BDSA first started tracking the percentage of Americans consuming cannabis in 2017 when I was its head of industry intelligence, cannabis consumers were about 25%-35% of adults in what were then just four early-legalizing states. So, the percentage consuming has nearly doubled in legal stateas, even though today’s 20-plus legal states include many where cannabis has typically been less popular than in, say, Oregon.

I think the message here is: don’t obsess too much about capturing the heavy-user market. They are the low-hanging fruit, of course, being the consumers whom you don’t have to educate about cannabis. But they also grow their own more than most consumers and typically have many friends and unlicensed dealers to rely on, who will always be able to beat legal-market pricing.

Instead, Missouri and the other successful red states have focused on the fact that cannabis is going mainstream. Stores are allowed in most commercial districts and are as friendly to the general public as, say, video stores used to be. Most of the major national brands entered through licensing deals during the medical era and are available everywhere. And perhaps most importantly, taxes and regulatory costs are limited.

The Red State formula for success

“It’s been a good market because we were able to do it constitutionally,” said Meyers, one of the leaders in the legalization movement. “We helped regulators write the rules so they could get going because we had nailed their feet to the floor with the constitutional language. They didn’t have a lot of time. We were the fastest state to get activated because it was in the Constitution.”

Taxes are substantially lower than in pioneering states like Washington and California (4.2% sales tax and 6% cannabis tax at the state level, up to 3% locally), and the 200 medical dispensaries that were granted adult-use licenses are well-dispersed across the state. Local operators benefit from the requirement that licensees must prove that 51% of ownership are Missouri residents.

Missouri’s successful roll-out has helped restore my confidence that despite the industry’s current malaise, and the inevitable public-shares meltdown from their ridiculous 2019 highs, the future of cannabis sales is bright….and nowhere brighter than in Missouri and other red states now coming to the party.