Yesterday, the Chicago Tribune reported that customers spent $39.2 million on recreational cannabis in Illinois the first month after legalization, citing the data from Illinois’s Department of Financial and Professional Regulation. Illinois allowed recreational cannabis sales starting on January 1, 2020. The article stated that Illinois residents bought $30.6 million of cannabis products. Meanwhile, out-of-state residents purchased the remaining $8.6 million worth of cannabis products. They contributed nearly 22% of the state’s total recreational cannabis sales.
Illinois became the second state to legalize recreational cannabis in the Midwest after Michigan. Michigan allowed recreational marijuana sales starting on December 1, 2019. In the first month, Michigan had $6.5 million in sales. As reported by the Chicago Tribune, Bethany Gomez, Brightfield Group’s managing director, stated that none of the states that border Illinois have legalized recreational cannabis. So, she thinks that Illinois has a strong advantage since it’s in the middle of prohibition territory.
First-month sales in Illinois
Although Illinois reported strong sales in January, the dispensaries faced product shortages. As a result, some dispensaries had to shut down their recreational sales at the beginning of last month. The product shortage could last for a few more months. So, there are buying limits in many stores. Also, some stores have restricted their recreational sales to a few days a week.
Speaking about the first month sales in Illinois, Gomez said, “There’s a lot more consumer demand that’s not being met just because of those supply shortages. Once supply and demand issues can start to be worked out, we can see much greater growth.”
Performance of the cannabis sector
The cannabis sector has been going through a tough phase. Last year, the ETFMG Alternative Harvest ETF (NYSE:MJ) and the Horizons Marijuana Life Sciences Index ETF (TSE:HMMJ) lost 31.4% and 39.0%, respectively. This year, MJ has lost 2.7% of its stock value, while HMMJ has increased by 1.0%. The slower rate of new store openings, vaping related deaths, higher operating losses, and pricing pressure dragged the cannabis sector down. Meanwhile, Canopy Growth (TSE:WEED), Aurora Cannabis (NYSE:ACB), and Aphria (NYSE:APHA) fell by 25.4%, 58.8%, and 13.6% in 2019, respectively. YTD, Canopy Growth, Aurora Cannabis, and Aphria have returned 7.5%, -4.7%, and -21.9%, respectively.
We expect that the cannabis sector bottomed out in 2019. Currently, only 11 states have legalized recreational marijuana, while 33 states have allowed marijuana for medical purposes. More states including New York, Minnesota, Florida, New Jersey, and South Dakota are working to legalize recreational cannabis. Provincial governments in Canada are taking initiatives to increase the number of retail stores. Also, passing the SAFE Banking Act could drive the sector.