Report: Massachusetts saturated with cannabis cultivation, retail

A new report on Massachusetts marijuana licensing cautioned against unchecked expansion in cannabis retail and cultivation in the state, as both sectors face oversupply risks.

The analysis by Whitney Economics examined licensing data across the state’s supply chain – from cultivators and product manufacturers to retail stores. It aimed to determine if Massachusetts should issue more licenses, and if so, in which categories and at what levels.

On the retail front, the report suggested Massachusetts may be approaching its limit on viable cannabis dispensary licensing, at least in the near-term. As of early 2024, there were 353 active retailers, with another 211 with licenses pending. The open stores averaged $5 million in annual sales apiece.

However, the report calculated Massachusetts cannabis retailers generally need $2.7 million to $3.3 million in annual revenues to remain economically viable after factoring in operating costs. If there’s not enough in the pot to go around, stores will close.

The report suggested capping the total number of Massachusetts cannabis retailers in the range of 620-650 – adding only about 100 more than currently active – to avoid jeopardizing the viability of existing and prospective store operators.

“Issue retail licenses in underserved counties sooner rather than later assuming there is no county or city restrictions,” the report said. “If there are restrictions, then prepare for license issuance in case the ban is lifted.”

In the product manufacturing sector – which includes businesses processing harvested cannabis into extracted oils, edibles, vapes and other derivative products – the analysis identified a significant opportunity for licensing expansion.

Whitney determined there is enough existing cultivation output supply to potentially support an additional 1,425-3,200 product manufacturer licenses in Massachusetts beyond the current 328 licensed operators.

The firm advised, “Develop a campaign to educate and articulate the opportunities in the processing and product manufacturing sectors.”

On the cultivation side, however, the study raised a bright red flag about severe oversupply in Massachusetts’ licensed growing capacity relative to projected consumer demand.

As of 2024, the state’s 427 licensed cultivators represent a maximum potential output of up to 4.2 million pounds of harvested cannabis annually. Yet the legal consumer market in Massachusetts is forecast to require only about 880,000 pounds worth of supply this year.

That means Massachusetts has issued licenses for up to 3.2 million pounds of excess cultivation capacity beyond projected demand, which may now go unused.

“The entire legal demand can be supported with cultivation operators utilizing less than 40% of their minimum canopy,” the report stated. “Do not issue additional cultivation licenses until the supply capacity is more in line with the demand that is based on legal consumer participation.”

The firm stressed that over-supply, particularly on the cultivation side, has been a factor in squeezing profit margins and jeopardizing business viability in other state cannabis markets. By issuing too many cultivation licenses too quickly before demand can catch up, Massachusetts risks a similar fate.

Calibrating the right levels and mix of licenses across the supply chain is always a balancing act for regulators. Issue too few, and opportunities for market participation are limited. Issue too many, and it can destabilize the legal industry’s economics altogether.

“Establish publicly available data on dashboards to assess pricing in the market for raw materials in addition to retail products and monitor the inputs going into processors in addition to the output,” the report added. “This will help both regulators to assess potential diversion and help operators make informed, data-driven decisions.”

The total number of active cannabis business licenses in the U.S. fell by 8% so far this year, marking the fifth consecutive quarter of decline from a high in late 2022.