Editors Note: This story was written by Carly Fisher.
As the West Coast matures from the early Green Rush and Midwest markets like Michigan and Illinois hit their stride with recent legalization, all eyes are on the Northeast as the sleeping giant that will radically change the national cannabis landscape for 2021 and beyond. Among the 40 million-plus residing in the tri-state area between New York, New Jersey, and Pennsylvania, the East Coast offers a monumental competitive advantage with substantial opportunities for new players to make their mark as soon as the industry is given the green light to move forward—which is only a matter of time.
“There is no question that a lot of states that were sitting on the fence on adult-use legalization will now turn to it as they look for tax revenues,” says Joe Bayern, President of CuraLeaf (OTC:CURLF).
Bayern points to New Frontier Data that estimates that if marijuana were legalized today, roughly 782,000 new jobs would be created, estimated to grow to 1.1 million by 2025. Federal legalization, it is estimated, would generate $131.8 billion in federal tax revenue between 2017-2025.”
While most are hedging their bets on Pennsylvania’s impending recreational legalization, industry insiders know that the real story is happening in New Jersey. According to a recent Clarus report, Pennsylvania is expected to continue building on its rapid growth that has contributed to TerrAscend’s (OTC:TRSSF) foothold as one of the fastest organic revenue growth rates in the U.S. cannabis sector thanks to the strength of its Ilera unit in Pennsylvania (PA). However, New Jersey is the market with a promising outlook as the key revenue driver over the next two years.
“Due to population density, overall population size and a prospective turn toward adult use, I think New Jersey and Pennsylvania present some of the strongest prospects in the East for sustained levels of growth,” says Greg Rochlin, CEO of Ilera Healthcare. “Given TerrAscend’s high capacity, professional operations and team in the East Coast, we are well positioned to serve our patients and communities with research-based education and high quality, consistently produced products, in compliance with the state-based regulatory guidelines.”
The Garden State is poised to be the first to legalize, with the issue a hot topic on the ballot for the next election on November 3. Widely expected to pass, it would be the most populous East Coast state to legalize at around 9 million people. Add to that the nearby metropolitan markets in Philadelphia and New York City that are anxiously awaiting legalization, and New Jersey dispensaries could effectively have a captive market of over 20 million people. Marijuana Business Daily projects a legal recreational industry in New Jersey could potentially generate $1.2 billion-$1.5 billion in annual retail sales by 2023.
At present, there are just 11 New Jersey dispensaries serving over 77,000 registered patients, with a maximum of 36 stores from existing operators. Additionally, there are only 12 vertically-integrated operators to date (including TerrAscend), with nine are up and running so far. TerrAscend is looking to open its first retail store in New Jersey with in-house product by Q1 for 2021, with two more stores expected by Q2 of 2021—a pushback from its original opening plans in Q4 of 2020. The Keystone State currently has the most developed medical cannabis infrastructure and is best positioned to transition to adult-use, while the Empire State—home to close to half of the population in the three states—will have the largest cannabis market in the northeast.
Still, there is no reward without risk, and the East Coast offers a unique combination of both. In addition to regulation and finding the right talent, climate and culture are among the most distinct challenges.
“Our region is also highly regulated so the barriers to enter and ability to sustain operations in these markets is high, requiring the appropriate skill set and resources to get a business up and running, and ultimately profitable. This is a challenge and an opportunity,” Rochlin says. “The climate in the East is not one that allows for large-scale outdoor growing, so more indoor infrastructure is required for a high-quality, high-production grow. In addition, the culture in the East is generally cautious when it comes to marijuana use, whereas in the West there tends to be a more laid-back and permissible attitude. While there is this dichotomy currently, outlooks are changing on the East Coast, and we anticipate a tipping point where marijuana becomes more culturally acceptable.”
In the wake of the devastation caused by COVID-19, New Jersey Governor Phil Murphy recently said that legalizing cannabis is a ‘no-brainer’ for economic recovery. Bayern believes that cannabis can be a real solution to help local budget shortfalls through tax revenue and job creation, citing the fact cannabis was deemed an essential service and Curaleaf’s plans for a new grow facility in New Jersey’s Winslow Township that will create close to 125 jobs in January of 2021 as two primary examples of how far the industry has come.
“Cannabis is growing tremendously and is increasingly accepted as part of mainstream society – for patients and consumers who rely on it for a variety of health and wellness needs during this difficult, stressful time,” Bayern says. “Finally, I think there are strong parallels with the ending of alcohol prohibition after the Great Depression; I think you’ll see the same thing happen, a push to legalization and taxation once we get out of the more difficult phase of this pandemic and we move towards reopening the economy and filling revenue shortfalls.”