Cannabis 2023 Review and 2024 Outlook: Growth and Regulatory Shifts

Over the past decade since Colorado first legalized recreational Cannabis
in 2012, the Cannabis industry has grown massively despite conflicting
state and federal laws. The legal market hit $33 billion in 2023, while
polls show 70% of Americans now support full federal legalization.

While various sectors of the US economy have been turbulent over the last
couple of years, the industry still experienced some growth in 2022-2023.
Industry analysts and advocates remain optimistic about the potential for
significant growth in the coming years, particularly if the long-awaited
federal regulatory changes related to Cannabis classification and
interstate commerce are implemented. These changes could lead to
substantial job creation, increased tax revenues, and a boost in overall
economic activity.

In this guide, we will provide an analysis of key Cannabis industry trends
from 2023 and outlooks for 2024, including:

- Recap of market growth, policy changes, and challenges in 2023
- Market size projections and growth predictions for 2024
- Potential impacts of federal Cannabis rescheduling
- Opportunities around interstate Cannabis commerce
- Merger, acquisition, and investment trends on the horizon
- Demand growth for Cannabis ancillary services like specialized
accounting
- Challenges still facing the maturing industry

Whether you’re an accounting professional, investor, entrepreneur, job
seeker, or simply interested in Cannabis, read on for an insider's view of
where the industry has been and where it’s likely heading next.


Reflecting on 10 Years of Massive Cannabis Industry Growth Since
Legalization

It's remarkably easy to lose sight of just how profoundly and rapidly the
regulatory environment and business climate have evolved for the Cannabis
industry when looking in the rearview mirror at the breakneck speed of
state-level legalization adoption and corresponding market activity over
the past decade.

Ten years represents an exceptionally condensed period to transition any
previously black market underground vice into a modernized,
professionalized licensed economic engine powering hundreds of thousands of
legal jobs, billions in tax receipts, and layers of ancillary economic
multiplier effects.

This swift public policy pivot towards accepting the inevitability of
consumer demand for Cannabis, combined with acknowledging the public health
failures from criminalized supply, led more progressive state legislatures
and voters representing 100+ million Americans to proactively enact
appropriate safeguards for medical use and regulated adult-use access
rather than cling to outdated propaganda.

What seemed nearly impossible not long ago from a federal prohibition
standpoint has manifested quickly into a semi-mature industry at the state
level. However, the business climate has yet to reach anything close to
stabilization while still saddled with irrational illegality federally and
lacking tested playbooks for navigating unique operational challenges
unseen elsewhere.

The following growth statistics and details underscore just how monumental
the Cannabis industry ascendance has played out since Colorado first
permitted full retail sales back in 2014. There is no historical precedent
or mature market blueprint to follow making the progress in just under a
decade even more incredible.


Public Opinion Shifts as More States Legalize

A Gallup poll in 2022 found a record-high 68% of Americans supported full
federal marijuana legalization, compared to just 12% in 1969. Much of this
shift correlates with more states enacting their own medical and
recreational laws, showing citizens that regulated Cannabis markets can
work.

As of 2023, 37 U.S. states have legalized medical Cannabis, while 24 states
allow recreational/adult-use sales. A decade ago in 2013, only Colorado and
Washington had legalized recreational use, joined by just 18 other medical
states. The current map would have been unthinkable back when federal
prohibition seemed set in stone.

State-level legalization has succeeded in raising tax revenues, creating
jobs, helping patients, and more without causing major public health or
safety issues so far. This real-world implementation is rapidly eroding the
decades-old “Reefer Madness” opposition arguments.


Predictions on Cannabis Market Size Growth

Beyond shifting public opinions, the economic impacts have also defied
expectations. In the United States, the value of the Cannabis market was
estimated at $13.2 billion in 2022 and is forecasted to expand, potentially
reaching $40.1 billion by the end of the forecast period.

The ancillary market, which includes industries related to Cannabis such as
lighting, packaging, consulting, and branding, is also experiencing growth.
While specific figures for the ancillary market are not readily available,
the overall expansion of the Cannabis industry suggests a positive impact
on these related sectors.

Along with the increasing acceptance of Cannabis use, new product
categories being sold recreationally such as edibles, concentrates, and
topicals are gaining popularity. As rescheduling Cannabis becomes a very
real thing, Federal legalization for medical use can open up even more
categories and opportunities for revenue growth.


Capital Flows Reflect Growing Investment Appetite But...

As state legalization triggered Cannabis into the mainstream commercial
arena, investor hype and dealmaking momentum expanded seeking first-mover
advantages despite federal obstacles restricting Wall Street and debt
markets. As more states legalize, Cannabis is turning into a real
mainstream business. Investors and deal makers are starting to get excited,
sensing a new boom industry taking off. Lots of venture money is already
flowing into startups, showing early confidence in legal weed's potential.

However, federal laws are still hurdles for normal financing. Banking and
Wall Street remain out of reach and constrained until national reform.
Still, the cash influx into the industry reveals legalization impacts
attracting attention despite admittedly chaotic cycles still unfolding
state-by-state.


Current Lulls Accentuate Implementing Operational Excellence First

Recent Cannabis capital availability challenges underscore the imperative
for battle-tested operators rather than growth-chasing theorists during
such nascency. Smart capital gravitates to executive teams focusing
internally on demonstrating sound governance, vital accounting controls,
cash flow discipline, and transparent financial reporting - crucial things
that are needed for scalability yet are lacking across most marijuana
startups. Having a CFO who understands the landscape of the Cannabis
industry, what sophisticated investors are looking for as far as financials
are concerned, and how to advise on sustainable financial strategies that
will serve the business long-term.


Substantial Tax Revenues Despite Restrictions

One of the stronger economic arguments spurring state-level legalization
involves redirecting existing Cannabis commerce from untracked illicit
markets into regulated systems enabling transparency and appropriate
financial oversight. Despite conflicting state and federal tax policies
limiting optimal revenue capture, the overall fiscal opportunity remains
substantial by bringing transactions into the light. Many analysts
highlight material tax receipt potential from various state efforts thus
far providing funds for public priorities like infrastructure, health
programs, and education initiatives. However, without federal guidance,
quantifying precise fiscal impact projections remains speculative. As more
states implement some form of legal access and interstate coordination
progresses, economic experts expect considerable upside for public coffers
if tax policies normalize around Cannabis approaching alcohol and tobacco
precedents. But exactly how expediently that potential gets unleashed or
what final budget scale emerges hinges largely on the pace of political
progress towards workable, stable regulatory frameworks informed by
maturing state pilot initiatives.


Mixed Signals for Future Cannabis Growth After Record Highs

Despite incredible progress breaking down barriers thus far, the Cannabis
industry entered a challenging transitional chapter over 2021-2023 from the
initial early state legalization “gold rush”.

Markets are undoubtedly still expanding quickly overall, but new headwinds
have arisen requiring strategy evolution for sustained success.


Capital Flow Slowdown As Investors Seek Lower Risk

Mirroring broader financial markets in 2022, Cannabis capital availability
suddenly declined as wary investors moved assets towards safer securities
with rising interest rates. This dramatic shift followed several overly
enthusiastic funding years.

Viridian reported Cannabis raises peaked in mid-2021 at around $2.5 billion
per quarter before slowing below $1 billion. Reduced investment activity
persisted despite signals from Congress that legalization is on the
horizon, showing macroeconomic conditions largely superseded sector
optimism.

They also tracked average Cannabis deal valuations dropped below $100
million, a level not seen consistently since 2019, confirming investor
sentiment pullback. Many analysts still see strong long-term potential but
are taking a show-me stance expecting better financial execution.

This capital shortage wilted plans for many upstart operators hoping to
become regional or national giants. They face renewed focus on fundamentals
like cash flow, margins, and managing dilution instead of growth above all
else. Survival now depends on rightsizing towards profitability.


Mind-Blowing Cannabis Market Expansion Still Expected by 2030

The global Cannabis market is poised for substantial growth over the next
decade, as indicated by various industry reports and market forecasts. New
Frontier Data's 2022 U.S. Cannabis Report projects a significant increase
in the number of U.S. consumers, with an expected rise “from 47 million in
2020 to 71 million by 2030,” driven by escalating self-reported usage
rates. Additionally, Statista's Market Forecast anticipates a robust growth
rate of 14.06% from 2024 to 2028, which drives the estimated market volume
to US$102.90 billion in 2028.

Furthermore, the Los Angeles Business Journal's Special Report on Cannabis,
citing Grand View Research, highlights the expected expansion of the U.S.
Cannabis market to compound annually at a 14.2% rate through 2030. These
insights collectively support the notion of a thriving global Cannabis
market, underpinning the expectation of substantial industry expansion both
domestically and internationally over the next decade.


State Cannabis Markets Enable Strong Job Creation

Rapidly growing legalized medical and recreational Cannabis markets across
dozens of states have unquestionably fostered substantial domestic
employment opportunities spanning both plant-touching operations like
cultivators and dispensaries as well as their expansive supplier and vendor
ecosystems. With thousands of storefronts and production facilities in
place, in addition to scores of ancillary businesses indirectly supported,
analysts broadly cite material positive job impacts already realized while
additional potential appears probable pending federal policy shifts.


Essential Roles Emerge Across Cannabis Value Chain

While particular occupational statistics and segmented growth figures
remain elusive to validate concretely, clear labor demand has formed around
essential functions like master Cannabis growers, dispensary store
managers, extraction technicians, regulatory compliance personnel, security
directors, inventory control managers, and various other operational and
administrative support roles.

However, industry employment conditions could face quality and compensation
pressures amid intensifying competition if the faster pace of state
legalization persists without eventual federal guidelines standardizing
workforce stability structures through access to traditional protections
and benefits. But for now, the broad-based “green rush” fervor continues to
benefit many workers with specialized Cannabis expertise in high demand
during such unprecedented expansion activity.


Rescheduling Cannabis Could Accelerate Growth

Possibly the most profoundly positive regulatory adjustment with financial
impact potential involves moving Cannabis out of the restrictive U.S.
Controlled Substances Act (CSA) schedules totally or into a less stringent
classification. This administrative change process differs from outright
federal legalization requiring congressional legislation.

Shifting marijuana regulation responsibility separately from the Drug
Enforcement Agency (DEA) control opens financial benefits plus research
expansion possibilities by acknowledging legitimate medical patient access
and state decision rights.

While not fully satisfying advocates seeking complete federal Cannabis
descheduling, incremental rescheduling progress remains meaningful and
achievable in the short term.


How U.S. Federal Cannabis Scheduling Works Now

Despite growing public sentiment and state policy support for Cannabis
allowing regulated adult or medical use access, marijuana remains
stubbornly classified as a DEA Schedule I illegal substance ever since the
CSA enactment back in 1970. This irrational categorization continues to
frustrate industry participants and reform supporters alike.

By definition per DEA, Schedule I classification deems Cannabis as
dangerous, open to abuse, possessing no medical utility, and so prohibited
except for narrowly permitted research studies. This highest level of drug
scheduling puts marijuana in the same group as heroin, LSD, ecstasy,
peyote, and other concerning substances lacking accepted health treatments.

Conversely, scientifically questionable yet culturally familiar drugs like
cocaine, methamphetamine, and fentanyl "merit" slightly better Schedule II
status in the DEA’s flawed eyes, making them legally available under tight
restrictions. Big Pharma Oxycontin painkillers containing actual heroin
molecule derivatives even qualify as Schedule II.

However, the DEA insists the flowering Cannabis herb remains too hazardous
for consumers and patients in legal states to handle responsibly,
necessitating total national prohibition. This stubborn unwillingness to
modernize despite societal progress leaves the industry filled with
unnecessary barriers.


Rescheduling Cannabis Implications

Thankfully, administrative pathways exist allowing science-based Cannabis
policy reform without waiting on obstructionist legislators. The key method
involves rescheduling through administrative review processes baked into
the original CSA wording.

Fortunately, after 50 years overdue for an updated Cannabis assessment, the
current presidential administration directed Health and Human Services
(HHS) along with Food and Drug Administration (FDA) experts to initiate a
review starting in 2021 with formal recommendations expected in 2022.

HHS did deliver their official marijuana rescheduling recommendations in
August 2022, conclusively stating Cannabis no longer meets the requirements
or criteria for irrational Schedule I status.

While HHS stopped short of advising full descheduling, they did suggest
moving marijuana into the less restrictive Schedule III category.
Additionally, in the fall of 2023, the FDA also agreed with the HHS report
in a memo to the DEA to move to Schedule III. This would allow Cannabis
much more flexibility around research plus access similar to approved
medical drugs with accepted health benefits despite some risks if misused.


Opportunities and Challenges Still Ahead for the Cannabis Industry

While the Cannabis industry outlook remains highly positive looking ahead
to the coming years, there remain several complex open questions and
unknowns that could significantly impact the speed and scope of continued
growth.

Topics like interstate Cannabis commerce, investment and acquisition
trends, demand for ancillary services, as well as ongoing maturity
challenges facing managers in the space all have a high degree of
uncertainty. The navigating of these issues could either turbocharge growth
if handled optimally or restrain the full economic potential if regulatory
and legislative bodies lag rapidly evolving public sentiment and
state-level momentum.

The following key areas represent massive latent opportunities for the
Cannabis industry on one hand but also pose threats if challenging status
quo dynamics fail to shift in a timely, reasonable manner. Industry
advocates must continue applying pressure across these fronts to smooth the
path toward maximizing future commercial prospects.


Opening Interstate Commerce Floodgates

Assuming Cannabis gets rescheduled federally from its current most
dangerous Schedule I status, one major regulatory challenge still blocking
exponential growth involves interstate sales and distribution.

The segment could balloon exponentially if high-quality products from
mature state markets like California and Colorado could ship freely to
newly opening state markets rather than each locale needing to reinvent
every wheel and learn lessons the hard way. But many complications around
branding, licensing, wholesale logistics, tax apportionment, etc. must be
resolved first before this scenario materializes to avoid illegal diversion.

If reasonable regulatory guardrails get established, some analysts predict
four to five-fold market size explosions almost overnight from interstate
policy reforms. This could significantly benefit vertically integrated
multi-state operators best positioned to maximize geographical reach.

The opening of interstate Cannabis commerce, while promoting massive market
growth, would also significantly escalate the need for proper accounting,
auditing, and reporting compliance across state lines. Similar to how
pharmaceutical products face tight federal regulatory scrutiny, Cannabis
shipped over state borders would likely fall under complex tracking rules
and taxes necessitating air-tight recordkeeping. Companies without
sophisticated accounting and inventory management systems could quickly run
into problems with lost products or tax diversion red flags. This
interstate shipping frontier would further advantage large operators with
resources to implement robust frameworks preventing issues before arising.
But it certainly bolsters the value proposition for accounting
professionals to guide clients navigating expansion while ensuring full
legal adherence.

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Merger and Acquisition Trends Expected to Heat Up

Despite recent capital crunch conditions putting a chill on deals, many
experts expect Cannabis merger and acquisition activity will regain steam
in 2024-2025 as rescheduling clarifies regulations allowing institutional
capital to re-engage.

Smaller startup brands facing bumpy profitability scaling hurdles may find
more stable homes under new corporate parents able to smooth operations
utilizing wider reach and resources.

This consolidation could mirror cycles seen in other maturing vice markets
like alcohol and tobacco transitioning from local to global enterprises
over decades. Surviving independents who successfully professionalized
could also attract renewed investor attention when markets normalize.

As mergers and acquisitions accelerate, valuation multiples on well-run
companies could expand rapidly thanks to clearer federal guidelines,
rescheduling of Cannabis, and re-energized institutional investors.
Cannabis businesses practicing disciplined financial planning and
transparent reporting should find themselves in high demand. Those
establishing accurate cost accounting, documenting operating controls,
properly filing taxes, and instilling other public company best practices
over the past chaotic years will be rewarded handsomely. Investors know
earning potential exists in this sector but need reassurance on execution -
companies with clean books and strong governance procedures signal lower
perceived risk relative to less buttoned-up competitors. Leadership teams
investing in operational infrastructure despite challenging conditions
could see substantial valuation premiums as the industry gets on sounder
legal and financial footing.


Ancillary Professional Services Demand Growth

While recent choppy public markets may have dampened enthusiasm by those
simply chasing the next hot trend, underlying Cannabis industry operating
fundamentals remain highly compelling long term. This expanding ecosystem
will critically require ever-growing professional services like legal,
consulting, logistics, compliance, marketing, etc. to meet client
sophistication and regulatory demands over time across every market.

CNBC detailed this “pick and shovel” parallel citing companies supporting
industry infrastructure versus directly cultivating or selling Cannabis
should keep seeing sustainably high growth without risks facing
plant-touching operators. Areas like software, packaging, testing, and
consulting may especially thrive if interstate trade flows accelerate as
smaller firms need integrated solutions allowing them to punch above weight.


Management Maturity Required to Navigate Ongoing Complexity

Despite optimism flowing from advancing regulatory progress and forecasts
for colossal growth runways, Cannabis remains filled with formidable
operational challenges that could trip up less disciplined managers. For
long-term players, sustainable success necessitates embracing an
institutional mindset balancing innovation with pragmatism.

Areas requiring perpetual attention include financial budgeting/reporting,
regulatory compliance, tax planning, capital allocation, risk management,
government affairs advocacy, and managing talent recruitment/retention
amidst workforce skill gaps.

Companies elevating board oversight and implementing robust infrastructure
around these critical functions generally prove best equipped to handle
industry volatility swings and seize opportunities ahead.

While loose operations and informal policies may have been tolerated amid
the “green rush” climate as Cannabis emerged from the shadows, those days
will quickly fade as imminent rescheduling demands federal compliance
preparedness and institutional investor expectations per other
SEC-regulated industries.

Entrepreneurial founders and startup executives wearing multiple hats out
of necessity remain commonly given sector nascency. But constructing
appropriate managerial separation of duties and elevated board governance
now becomes mission critical where before considered nice to have. Investor
guard rails and fiduciary duty will only intensify moving forward.

Forward-thinking plant-touching companies as well as burgeoning ancillary
services organizations must showcase operational excellence fortifying all
facets of accounting, compliance, HR, data security, inventory, and
reporting procedures well in advance of expanded oversight.

Top talent leaders driving maturation for this unique industry require
creative resourcefulness yet simultaneous commitment to upholding best
practices borrowed from heavily scrutinized frameworks elsewhere. Teams
focused purely on growth above all else inevitably get displaced by prudent
peers building scalable infrastructure mapped to forthcoming expectations.

The Cannabis board rooms and C-suites that populate and steer maturing
enterprises will enforce much higher quality standards across functions
than lenient founding days. Attracting external capital depends greatly on
proving capable stewardship, systems integration, and leadership vision
through calculated actions rather than lip service. Companies acting in
advance on these dynamics maintain pole position.


Stay Confident But Remain Cautious Amid Marijuana Market Shifts

In conclusion, there are certainly valid reasons supporting mega growth
expectations for the Cannabis industry based on extraordinary market
expansion and political shifts observed over the past decade. The
statistically documented public health and society benefits from legal
access relative to unreasonable prohibition policies should continue
driving state and federal reform momentum.

However, barriers limiting business stability and mainstream consensus do
persist for at least a while longer until full descheduling implementation.
Markets don’t move in straight lines and external shock factors - like the
recent COVID demand swings and high inflation/interest rate environment -
slowed industry velocity and complicated visibility.

Therefore Cannabis participants right now should cultivate "cautious
optimism" mindsets. Plan doggedly for big future scale recognizing huge
addressable markets remain largely untapped thus far while staying
laser-focused on smart near-term financial governance, risk mitigation, and
building operational excellence. Disciplined blocking and tackling will set
the stage enabling agile strategy pivots sure to come.