High Stakes: Unpacking Market Concentration in Cannabis

Introduction

This article examines market concentration, which represents the proportion of total sales attributed to leading brands in a market. As market concentration varies significantly across states, provinces, and countries, the opportunities for brands also differ. Markets with lower concentration levels present opportunities for a larger number of brands and maturing markets with high brand concentration may be rife with opportunity for new entrants to the stand out from established players.

Market Concentration

The US cannabis market is heavily defined by the variation in market maturity for each state. On average across all tracked US markets the top 10 brands capture 31% of total sales. This figure varies greatly by market where emerging markets such as Ohio, Missouri, and New York see a few top brands capturing a large chunk of total sales. Inversely, established markets such as Michigan, Oregon, and Massachusetts have less concentrated markets with higher brand counts.

In Canada, where the market is unified nationally, there is less variation in market concentration between provinces. However, the top 10 brands in each market capture an average market share higher than the US, at 38% of total sales.

Market Concentration Over Time

It's easy to look at a new market, such as New York, and think that their high market concentration of 37% of total sales for the top 10 brands represents a challenging landscape for new entrants. However, it may actually signal the opposite.

As a market matures the market share captured by the top brands initially starts fairly high. However, as a market develops new brands enter and begin to carve out their space in the blooming industry, creating a more competitive and dispersed landscape. As we can see from Arizona, Illinois, and Michigan which all launched their adult use markets during 2019 and 2020 the market share of top brands decreased shortly after launch.

While emerging markets see market concentration fall the first few years, mature markets show a different trend. Once the dust settles in the market, typically in the 10%-20% range for the top 10 brands, market concentration starts to creep back up albeit at a slower rate as market leaders secure their slice of the market and work to grow their base. Mature markets such as California, Colorado, and Nevada have clear market leaders while also supporting a strong cast of competing brands.

Canadian markets display this U-shape trend clearly and in sync due to their unified market timeline. Though the level of market concentration is noticeably higher than their southern neighbor.

When it comes to market concentration new adult use cannabis markets start out with a large amount of market share possessed by just a few brands, however, as the market develops more brands enter and carve out a space for their brand lowering the amount of total sales controlled by just a few top players. The mature market reaches a sustainable plateau which looks like 10%-20% of total sales for the top 10 brands in the US and 18%-25% for top 10 brands in Canada before increasing again at a more conservative rate reflecting the top brands efforts to grow their positions as market leaders. As always Headset has the data to help new entrants find their space in a young market while helping existing brands in mature markets find a path to sustainably growing their current footprint.