Despite the expectations that the legal California cannabis market would rank amongst the highest in the world, a research agency has lowered its sale projections for the state by US$2 billion.
New Frontier Data, a firm issuing reports on business intelligence for the cannabis space announced on Monday (May 22) it has lowered the sales projection it previously held for the state from US$3.8 billion to US$1.9 billion due to “lower than expected cannabis excise-tax revenues for Q1 2018.”
Giadha Aguirre De Carcer, New Frontier Data founder and CEO said in the statement that the adult-use regulations in the state have made it “more difficult than anticipated” to establish the legal market compared to the existing illegal operations.
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“Given the number of local government bans on cannabis businesses, we are not seeing the same kind of conversion rates that we have seen in other legal markets,” Aguirre De Carcer said.
According to New Frontier Data, California collected US$33.6 million in excise-tax revenues between January 1 and March 31, “which put them significantly behind pace to meet original expectations for collecting US$175 million within the first six months of 2018,” the agency wrote.
California sales projection lowers to over US$4 billion in 2025
This decline has caused the firm to now reevaluate its estimates all the way up to 2025. Instead of the originally forecasted US$6.7 billion in sales for the state, New Frontier Data now calculates that value to reach US$4.72 billion by 2025.
According to the statement, New Frontier Data evaluated two aspects when it came to rebalancing its projection. The firms’ analysts redefined what exactly a legal medical patient is while lowering the conversation rate for black market consumers transitioning to legal ones.
New Frontier Data estimates the total value for 2018 in the cannabis legal market will be US$1.92 billion and it is expected to grow at a compound annual growth rate (CAGR) of 13.7 percent from now until 2025.
The research firm is also expecting to see a 5.4 percent decline in the medical market throughout 2025, reaching a value of US$760 million, compared to the US$1.12 billion estimated current value.
During the same period, adult use sales are projected to grow at a “25.5 [percent] CAGR, from US$805 million to US$3.96 billion,” New Frontier Data wrote.
In February, Business Insider wrote on a BDS Analytics report placing its estimates for the California cannabis market at US$3.7 billion in 2018 and US$5.1 billion in 2019.
Statista, a provider of market and consumer data, offered its own prediction for the growth of the cannabis industry, projecting the marijuana sales value would reach approximately US$6.59 billion in California in 2025.
A new potential roadblock for legal consumers is starting on July 1 when cannabis producers in California will be required to obtain a seal of approval from a verified testing facility.
William Waldrop, CEO of EVIO Labs (OTCQB:EVIO) told the Investing News Network any cannabis product sold in California dispensaries is expected to have been tested and obtained a certificate confirming it.
While market prediction isn’t an exact fact, especially with potential catalysts such as federal decriminalization of the drug in the US, this projection does indicate the volatility of the cannabis industry.
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Securities Disclosure: I, Bryan Mc Govern, hold no direct investment interest in any company mentioned in this article.