Marijuana sales along state lines are key revenue generators for retail operators in the United States, and new insights suggest a similar business bump along international borders, particularly Mexico.
Data compiled by New York-based wholesale technology platform LeafLink – as well as information gathered from state agencies, quarterly reports and interviews with several cannabis companies – bear that out.
LeafLink analyzed hundreds of ZIP codes at the request of MJBizDaily and found strong links that when new recreational markets open, retailers near borders stock up on inventory significantly more than operators located elsewhere in a state.
Data from the past three years revealed wholesale marijuana products purchased by border stores jumped 140% after the launch of adult-use sales, while retailers located in more interior areas increased purchases by about 80%.
“The growth when a state launches adult-use sales at a border store in terms of purchasing activity is around double the growth of the remainder of the state,” LeafLink Strategy Analyst Ben Burstein told MJBizDaily.
Of course, numerous factors are at play – perhaps none more impactful than the marijuana policies of neighboring states.
There also are retail sales-tax implications, a big reason why St. Louis-areas operators are seeing an influx of shoppers from southern Illinois, where cannabis taxes are at least three times higher than in Missouri.
Meanwhile, border retail in New Mexico is boosting depressed economies along hundreds of miles of its shared borders, drawing stampedes of consumers from neighboring Texas and, more recently, cross-border buyers from Mexico.
Retail shakeup in the heartland
The February launch of adult-use sales in Missouri has caused ripple effects throughout the Midwest.
Missouri holds the rare distinction of bordering eight states, with only Illinois offering recreational marijuana sales.
Missouri's 6% retail tax on recreational marijuana purchases is also among the lowest in the nation, drawing Illinois consumers across the Mississippi River in droves to buy much cheaper weed.
All in, cannabis sales taxes in neighboring Illinois eclipse 30%, second only to Washington state. And in Chicago, sales taxes can easily top 40%.
Demand is booming in western Missouri, too.
In April, Missouri retailers near the border of Kansas, where marijuana possession is also illegal, told MJBizDaily they were seeing foot traffic increase ninefold after expanding into recreational sales.
The rush of new customers, coupled with cultivation-capacity lags, has led to big spikes in wholesale flower prices and inventory shortages throughout the supply chain.
Retailers, for their part, are trying to keep pace.
To meet consumer demand, wholesale purchases per store in the Kansas City, Missouri, market increased from $97,000 in the quarter before the launch of recreational sales to $491,000 in the quarter after, a whopping 406% jump, according to LeafLink data.
In the St. Louis market, which borders southwestern Illinois, wholesale purchases per store increased nearly 57%, to $610,000, after adult-use sales began.
“The demand’s been bigger than anyone expected,” Burstein said.
A zero-sum game
In marijuana retail, particularly near state borders, it’s a zero-sum game.
The sales boom in the St. Louis market, which has more than 70 stores, has deflated business on the Illinois side of the border, where retailers have lost millions of dollars in sales since Missouri’s adult-use launch, according to quarterly reports and earnings calls.
Top executives at New York-based multistate operator Ascend Wellness Holdings, which has two shops near the Missouri border, cited revenue declines at its southern Illinois stores in recent earnings, saying it has led to suppressed margins that are expected to linger for much of the year.
Florida-based MSO Jushi Holdings, which also operates two Illinois stores near the Missouri border, reported an 8.8% year-over-year revenue decline to $66.4 million in its second quarter, partially attributing the slide to adult-use sales in Missouri.
In an Aug. 11 second-quarter earnings call, Jushi CEO James Cacioppo said total Illinois sales declined 20% from the first quarter and 40% year-over-year.
“I think we under-anticipated the pricing power initially out of the gate that retailers were going to have in Missouri,” Jushi Chief Strategy Director Trent Woloveck told MJBizDaily in an interview.
“The impact was a little bit greater than then we had thought due to that pricing for flower, vapes and infused products.”
In response, Jushi has implemented several initiatives, including adding new promotions and diversifying product SKUs (stock-keeping units) to ease the impact of declines sales in Illinois.
Market dynamics in northern Illinois, particularly along the Wisconsin border, are a different story.
Wisconsin is among 10 states without a medical or recreational marijuana program.
Illinois counties bordering Wisconsin – including Lake, McHenry, Jo Daviess and Winnebago – accounted for 15.4%, or $239.7 million, of the nearly $1.6 billion in cannabis sales last year in the state, according to a fiscal analysis requested by pro marijuana-legalization lawmakers in Wisconsin.
The Wisconsin Legislative Fiscal Bureau report, which was released in March, cited annual statistics from the Illinois Department of Financial and Professional Regulation.
Moreover, the report estimated about 7.8% of marijuana sales in Illinois in 2022, roughly $36.1 million, were generated by out-of-state residents traveling from Wisconsin.
Under Illinois law, out-of-state residents can only purchase recreational cannabis.
Two of Chicago-based multistate operator Cresco Labs' 10 stores in Illinois are located near the Wisconsin border: a Sunnyside outlet in South Beloit at the border and one in Rockford, about a 30-minute drive away.
The South Beloit store often draws up to 1,000 daily visitors, according to Cresco's national retail president, Cory Rothschild - traffic on par with the nation’s busiest marijuana retailers in highly populated areas.
It's all the more impressive, considering that South Beloit has a population of roughly 8,000 and is more than 40 miles from Madison, the nearest city and Wisconsin's state capital.
“It's an extremely high-volume retail location,” Rothschild told MJBizDaily.
“South Beloit and Rockford as well are probably (among the) top dispensaries in the country.”
Maryland is the newest recreational cannabis market, with nearly 100 medical marijuana dispensaries having converted to adult-use retail in late June.
While LeafLink wholesale data suggests about a 10% increase in wholesale product purchases statewide after the launch of adult-use sales, some retailers along Maryland’s south and eastern borders are doubling orders to meet demand.
In Elkton, near the Delaware border, stores are ordering about $41,000 in wholesale products per month, up 115% since the launch of recreational sales on July 1.
In the Rockville/Germantown area - outside of Washington DC and near the Virginia and West Virginia borders - monthly wholesale purchases have increased about 42%, to $54,000 per store, since recreational sales began.
Meanwhile, Virginia's adult-use rollout has been put on ice by Republican Gov. Glenn Youngkin.
MSO MariMed's wholesale business serving retailers in Maryland has benefited from increased demand from neighboring states, according to Jeff Jones, director of operations.
“We have retail customers that are very close to Virginia, Pennsylvania and West Virginia, and I'm sure that's driving a significant amount of their business,” he said.
The Massachusetts-based company supplies every retailer in the state with its product brands.
MariMed is planning to double its cultivation and canopy space in Maryland, with product from that expansion expected to hit the wholesale and retail markets in the first quarter of 2024, Jones said.
Its retail operation in Annapolis - the state capital is about a 45-minute drive from Pennsylvania or West Virginia - hasn’t experienced the same type of uptick from border business but is still performing well, according to Jones.
A tale of two borders
The small town of Sunland Park, New Mexico, has racked up outsized sales since the state launched recreational retail in April 2022.
The sparsely populated bedroom community is situated across the border from El Paso, Texas, and Jaurez, Mexico, which have a combined population of more than 2.2 million.
That purchasing power has helped Sunland Park's 88063 ZIP code top the state for per-capita adult-use spending, a sales metric that divides dollars spent for cannabis by population.
Per-person recreational marijuana spending in Sunland Park was $1,044, according to an MJBizDaily analysis of data from the New Mexico Regulation and Licensing Department.
Its 88063 ZIP code also houses two of New Mexico's leading cannabis stores.
Ultra Health and Everest Cannabis Co. generated nearly $6.1 million in combined sales from August 2022 to February 2023, according to MJBizDaily research.
Because business has been so strong at that Sunland Park store, Ultra Health last summer opened an adjacent location that handles only online orders for pickups.
The majority of its 42 stores were strategically aligned to capture business along New Mexico’s more than 600-mile border with Texas, the second-most-populated state.
“I would say half our business is Texas-related,” Ultra Health CEO Duke Rodriguez told MJBizDaily.
As part of that strategy, the company is planning to open an outlet in Lordsburg with hopes of drawing customers from Mexico, Texas and Arizona.
Mexico border towns share more than commerce, including family, culture and language.
Some residents own commercial properties and homes on either side of the border.
And residents tend to travel freely between Juarez, El Paso and Sunland Park to shop, dine and visit friends and family, according to Rodriguez.
Many also buy regulated marijuana, which might come as a surprise to some industry watchers, especially those unfamiliar with border business in the Southwest.
Though transporting licensed cannabis across the U.S.-Mexico border is barred under federal law, it's fairly common, industry insiders tell MJBizDaily.
“The product is intended to be consumed within the state of New Mexico and should not cross state or international boundaries,” Ultra Health's Rodriguez advised.
“The reality is some consumers cross these boundaries intentionally or by not being fully aware of the risk and prohibition.”
Sales in other border communities, such as Clovis and Hobbs - where Ultra Health also has stores - are also outpacing the field, another sign that Texans, and some Mexicans, are crossing the border to purchase marijuana from New Mexico marijuana retailers.
Chris Casacchia can be reached at email@example.com.