Brief Report - Recommended Cannabis Dispensary Count By State
Using alcohol retail density to help guide a state by state Cannabis dispensary footprint
Our “Brief Reports” are a short version of our typical analysis that we believe may be helpful or insightful to our audience. Enjoy!
The U.S. alcohol retail market saw over $72 billion in sales between the beginning of December 2021 to the end of November 2022 from over 40,000 locations across the country. Though these numbers look high, it might surprise you that the combined market of U.S. legal and illicit sales of Cannabis is estimated to be $97 billion, $25 billion over the retail alcohol market.
The overall alcohol market is much larger than Cannabis. Though the majority of those sales are not through retail stores; but through restaurants, bars, recreational facilities, and event-hosting venues. Cannabis sales are conducted solely through retail activity in the legal market and by dealers in the illicit market. There are only a handful of Cannabis consumption lounges today.
Having a proper dispensary density is fundamental to having a thriving legal market. Aside from price, consumers are likely to go to the black market for convenience. If there is a lack of legal dispensaries in the area, or the existing ones are overcrowded, consumers may not make the switch even at the same price.
Comparing only the retail sales of alcohol to Cannabis, we aim to look for the optimal retail footprint by State for the appropriate number of Cannabis dispensaries to satisfy the entire demand and have a well-penetrated marketplace.
Methodology
We used a straightforward methodology to come to our results.
We first gathered our data from a variety of sources. They include US Census Data for population estimates, Cannabis market size data from New Frontier Data, alcohol retail footprint from IBIS World, and alcohol retail sales data from the St. Louis Fed.
Creating a ratio between the two market sizes and calculating the alcohol retail footprint density, we calculated a recommended national dispensary density of 1 dispensary for every 5,937 people.
Using this ratio, we estimated the number of dispensaries required per state based on population.
As a result of the simplicity, the methodology is subject to error. The input data did not account for grocery stores or other sales locations besides alcohol-specific retail. We also did not use other retail-specific factors in our analysis.
It is also important to note that the number of dispensaries alone is not enough to support a fully legal market. The main factor is cost, but quality, selection, and safety also rank highly.
Results & Findings
The table below applies the recommended ratio of 1 per 5,937 people to the Census population data by state to come to our recommendation. Analysis was conducted on all states regardless of the legal status of Cannabis.
The above data shows that the industry still has a long way to go before the legal market can fully take shape, even in existing mature markets. Limited licenses, local ordinances, and other regulations have limited progress to the appropriate number of dispensaries to create a fully functional legal market.
The data also shows that investors can remain optimistic about the industry's growth. In contrast to Canada, the current US market has an underutilized retail footprint, giving the industry room for a sustainable future.
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