Missouri: The Next Billion-Dollar Cannabis Market?

Missouri is on track to become the next billion-dollar cannabis market, but the strong demand has increased wholesale prices and tightened supply.

Missouri launched adult-use sales Feb.3, three months after voters approved Amendment 3 on the statewide ballot, and the market has already grown significantly faster than expected.

In the first 26 days of adult-use sales, Missouri brought in $102.9 million in total cannabis sales, with $71.7 million for adult use and $31.2 million for medical, according to data from the state's Department of Health and Senior Services (DHSS).

February sales represent one of the industry's most successful adult-use sales launches regarding sheer sales volume. For example, Missouri has a population of roughly 6.2 million. By contrast, Illinois, a state with roughly double the population of Missouri, recorded $39.2 million in adult-use sales during its first month of a program rollout. In Michigan, a state of 10 million people, it took 15 months to surpass the $70 million monthly sales benchmark for adult-use cannabis.

RELATED: Illinois Cannabis Sales Take Major Hit on Heels of Missouri Legalization

LeafLink, a cannabis wholesale platform, projected if sales continue at this pace, Missouri’s cannabis market could eclipse $1 billion before the end of the year.

According to DHSS data, the state's cumulative sales are also approaching $1 billion, as they currently sit at $871.4 million since a commercial medical market first launched.

And March sales are on par with February, and even experienced a 23% increase, bringing in $126.2 million in total sales. While March's medical sales increased slightly to $32.7 million, adult-use sales increased by nearly 30% to $93.5 million, according to DHSS data.

So, what are the main factors driving Missouri's high demand and astonishing sales figures?

Ben Burstein, corporate development associate for LeafLink, says one of the main factors is that Missouri is tied with Tennessee as the most bordered state in the U.S.

Missouri is bordered by Iowa, Illinois, Kentucky, Tennessee, Arkansas, Oklahoma, Kansas and Nebraska–and Illinois is the only such state with an adult-use program.

"Missouri is the most bordered state in the country. There are eight states around it. Some of them have no legal cannabis program at all [besides] Illinois," he says. "You just had such a buildup of demand from the states surrounding Missouri. … You just had Kentucky launch the beginnings of their medical program and legalized [recently]. That demand is not going to slow anytime soon."

Burstein says another factor that could be driving the increased demand in Missouri is that Illinois' cannabis taxes are higher and retail prices in certain areas of the state can also be higher.

Missouri takes a 6% tax on every adult-use purchase, whereas Illinois takes 6.25% plus an additional excise tax of 10%. Both states allow municipalities to add a maximum 3% tax on recreational sales, according to Sales Tax Handbook.

"[We saw] a few different trends in Southern Illinois, where the prices are a lot higher at those stores. You also have higher taxes," he says. "So, it encouraged a lot more cross-border traffic to Missouri dispensaries, which is a reversal trend over the last year or two. You had a lot of out-of-state buying from people in Missouri going to Illinois."

High Prices, Tight Supply

The increased demand has led to increased wholesale prices and tighter supply, Burstein says.

According to LeafLink data, aggregated wholesale flower prices per pound have jumped nearly 50% from $1,455 in the last week of January to $2,175 in the last week of February.

"The supply chain wasn't anticipating as much demand as there ended up being, [but] that's going to start to be resolved over the next couple of months," he says. "It just takes time for cultivators to bring on more [grow rooms]. It takes time for manufacturers to have enough capacity to bring that bulk product into branded products."

Missouri currently has about 50 licensed cultivation facilities, limited to 30,000 square feet of flowering plant canopy space, 70 manufacturers, and a little over 200 dispensaries, according to DHSS.

"To start with 200 stores is one of the highest counts on the first days of adult use," Burstein says. However, the state has seen some product shortages, according to LeafLink.

"There's just not enough product in the state, but it's just going to take a couple of months for those new grow rooms and new cultivations to come online," he says. "And I've read that a lot of Missouri cultivators have been requesting expanded capacity from the state. I think that will help balance the market a bit over time."