Photo / Fred Field
Nate Bowers, assistant manager, mixes nutrients for 80 cannabis plants at AAA Pharmaceutical Alternatives in Manchester.
Updated: June 27, 2022
The business of cannabis
Can-do economics: Cannabis retailers work to define the nuances of the marketplace
Photo / Fred Field
Alex Burnham, cultivation manager of AAA Pharmaceutical Alternatives, says each cannabis store needs to find a niche in the fast-growing market to succeed.
By Jessica Hall
The town of Manchester in Kennebec County has a population of about 2,450, yet boasts four cannabis stores.
Still, the proprietors there don’t see the market as saturated because they see themselves catering to an expanding market with the nuances and expertise to support their own customer bases.
“Everyone in town has been established and has a market. It’s like the alcohol industry: there’s all sorts of varieties out there. You just have to find your niche and product and market,” says Alex Burnham, cultivation manager of AAA Pharmaceutical Alternatives.
He cites the little things. “We hand-trim all of our product. We grow in soil, which makes for a richer and more flavorful flower. We grow small batches and have attention to detail. We’ve got a boutique feeling. We’re not trying to mass produce,” Burnham says.
AAA Pharmaceutical Alternatives first began as a medical marijuana dispensary but has shifted to adult-use sales.
“We’ve been here for five years and steadily seen sales grow year over year. There have been changes in attitudes around cannabis. It’s more accepted. We see more types of people coming in, from your 21-year-olds to 75-year-olds,” Burnham says. “Just like any market, it’s about supply and demand, but the demand keeps growing.”
David Vickers, owner of Origins Cannabis Co. in Manchester, also sees similarities between the cannabis market and the alcohol industry. Beer, for example, ranges from national producers like Budweiser to craft breweries like Allagash Brewing Co. and Shipyard Brewing Co., he explains.
“How many beer companies are in Portland alone?” Vickers asks. “They all have a market and a following. I’ve never felt crowded here. This is a rocket ship and I’ve never looked back.”
An engine of economic growth
In Maine, there are 90 active adult-use retail stores across 34 municipalities. Retailers of adult-use cannabis had sales of $82 million in 2021, compared with about $4.3 million in an abbreviated, shortened first year of 2020 when sales were legalized starting in October. This year is already on pace to top last year’s sales. In the first five months of 2022, sales of adult-use marijuana totaled $51.5 million.
Even by a different measure, cannabis is still the crop that keeps on giving.
Michael Donihue, Colby College’s Herbert E. Wadsworth Professor in Economics, looked at the 12 months starting with legalized sales in October 2020 through September 2021.
In those first 12 months, recreational cannabis generated $58.5 million in sales, $8.8 million in sales and excise tax revenue and $65 million from direct and indirect spending by businesses and employees associated with the industry, he adds.
The industry also supported 900 jobs in the first year, Donihue says.
“It’s a small business engine of economic growth. It had a dramatic rise in just the first year,” Donihue says.
Jacques Santucci, president of Portland-based Opus Consulting, which specializes in the cannabis industry, says he sees the adult-use recreational market in Maine hitting $300 million in sales by 2025.
Several factors are driving the meteoric growth. Maine has the second highest consumption rate in the Northeast, behind Vermont, and close to 200,000 monthly consumers, Opus Consulting says. Maine comes second only after Oklahoma nationwide in terms of Google search interest per capita, the firm found.
Medical marijuana continues growth
That’s just the recreational market. The medical marijuana market is its own beast.
Maine first legalized medical marijuana by referendum in 1999. In 2009, Maine voters established a legal distribution mechanism and the medical marijuana program became operational in 2010, with the first of Maine’s medical marijuana dispensaries opening in 2011.
Since its establishment, the state’s medical program has grown from a small industry consisting of eight dispensaries — one in each public health district of Maine — and nearly 600 caregivers to a fully commercialized operation consisting of 13 dispensaries and about 3,000 registered caregivers.
The medical sector had $374.2 million in total sales in 2021, compared with $293.7 million in 2020 when it became the state’s most valuable agricultural crop for the first time.
Over time, Santucci says he expects the adult-use recreational market to command about 90% of the market, while the medical marijuana sector will shrink to 10% because of the lack of testing and oversight in the medical sector and the hassles in getting a medical marijuana card.
Of course, there’s still an illegal market for cannabis that goes unreported.
The state’s Office of Cannabis Policy issued a report in June saying that the illicit market has decreased more than expected since the legalization of the adult-use recreational industry in Maine.
The report says a significant majority (64%) of cannabis accessed for consumption among past-month cannabis users in Maine is estimated to come from a regulated or otherwise legal source. The presence of an adult-use store in a consumer’s ZIP code may incentivize them to access some of their cannabis from the regulated market over the illicit market.
Cannabis still a nascent industry
Hannah King, a Portland lawyer and partner specializing in cannabis law with Dentons Bingham Greenebaum, says Maine’s nascent cannabis industry is still in the startup phase.
“You go from having no market to having a market overnight. There’s going to be a lot of volatility. All marijuana businesses are startups. And startups have attrition rates. About 80% of startups fail in the first five years,” King says. “Maine’s market is brand new. We don’t know what the market is yet.”
“The industry 15 years ago was completely illegal. And 10 years from now it’s likely to be federally legal. That’s a huge amount of change,” King says. “There are pockets of Maine that are oversaturated, but we are progressing well overall.”
King says she expects more regulation and oversight to come to the medical marijuana sector, and federal legalization of cannabis to occur at some point.
Danger signs
Experts are split on whether cannabis will be legalized on a federal level. But they agree legalization could spell major changes for Maine companies.
“Federal legalization is coming. It would be smart for these companies to be thinking a few years down the line,” King says.
Santucci, meanwhile, says he does not expect federal legalization to happen — yet if it does, watch out.
“Some think it will be five to 10 years from now. At the end, the business side of cannabis is already so far on its way that federal legalization is not going to happen,” Santucci says.
“If it does become legal, it would be a catastrophe for some Maine growers,” Santucci says. “If it becomes federally legal, now you could get products from cheaper places. How would 3,000 caregivers keep up? Those 3,000 will shrink to less than 100 in Maine. Craft cannabis can still exist, but only the best can exist.”
Meanwhile, the retail adult-use sector will operate like coffee shops, Santucci says. The product will not likely come from Maine, but from states with lower operating costs or massive production houses.
“Cannabis will be a commodity. It will be like coffee. You can brew coffee at home for 25 cents a cup or go to Starbucks and pay $6 a cup. Cannabis will be the same thing,” Santucci says.
“It will be just like the coffee market. You have Maine-based chains like Aroma Joe’s. They are not a coffee producer. They sell us coffee. There will be Maine-based cannabis brands, but the product will be made in the middle of the country,” Santucci says.
If cannabis is legal on a federal level, Maine growers wouldn’t be able to compete against growers in New York, where they are building more than 1 million square feet of cannabis production, Santucci says.
“If it becomes legal, the mass producers will be everywhere. Most people look at price and customer experience,” Santucci says.
If federal legalization happened, some Maine retailers think they would still do well.
AAA Pharmaceutical Alternatives says it sees federal legalization as an opportunity to create a national brand for its edible line of cannabis-infused cheesecake bites.
“We’ve been wholesaling them to other locations in Maine. We could do that nationally,” Burnham says.
“Maine has an amazing history of producing craft industries, whether it’s amazing local restaurants or beer or candy. If there’s federal legalization, we will see mass suppliers. But Maine will have value-added products and will be able to survive. There’s Budweiser and one-kettle production breweries. There’s room for both. The same opportunities exist in cannabis,” King says.
“The winners and losers won’t be dictated by size or location, but how well they attract and speak to customers and develop a brand,” King says. “In Portland, on Commercial or Congress Street, you have bar after bar after restaurant after restaurant. They all manage to survive. They have to ask themselves ‘What is our market and how do we drive customers?’”
“Some people get worried that all this cannabis will come into Maine. But the market supports both Budweiser and Oxbow Brewing. We’re not trying to be Michelob Light,” says Origins’ Vickers. “Support local, be local. That’s my deal.”
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