Lack of product variety blunts Connecticut’s adult-use marijuana sales

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Connecticut’s adult-use marijuana market has hit some potholes less than a year after launch, with overall sales of recreational and medical cannabis dipping in October – an uncommon development for a new market.

A lack of product selection for consumers and medical patients is prompting shoppers to continue visiting stores in neighboring Massachusetts, a concern local operators have voiced for months.

The slowdown in overall sales reflects a combination of other factors as well, including:

  • Regulatory curbs such as product restrictions.
  • More municipalities prohibiting adult-use sales and other cannabis businesses.
  • High barriers for new entrants.
  • Competition from more established markets in neighboring Massachusetts and Vermont.

However, experts say the lack of product choice – Connecticut essentially has only four product manufacturers – is the biggest impediment stunting growth in this East Coast adult-use market.

The market launched in January with only about a half-dozen retail outlets.

October sales of regulated adult-use and medical marijuana fell to $24.8 million, down from $25.2 million in September.

Recreational sales, which accounted for about $14.7 million of that October total, have increased only 5% since August, according to state data, underscoring some potential pitfalls of limited licensing.

Adult-use sales through the first 10 months of the year were $103.5 million, well below MJBiz Factbook projections of about $200 million for the first year.

By 2028, recreational sales are forecast to hit about $850 million.

The recent sales slowdown also coincided with the debut of at least three new adult-use stores in October, another anomaly given that more retail outlets presumably would give consumers more shopping options.

‘More choices’

“There’s plenty of consumers that I know here in Connecticut that choose not to go to dispensaries because they don’t like the quality of the product,” said Justin Frytz, co-owner and CEO of The White Oak Bridge, which has a provisional license to provide warehousing, distribution and packaging services for state cannabis companies.

“They still go to Massachusetts because they feel the quality of the product is better and they have more choices.”

Regulatory restrictions in the adult-use market, including potency caps and outright bans on several products such as capsules, pills and sublinguals, tell part of the story.

The vertically integrated market is also dominated by multistate operators, including New York-headquartered Curaleaf Holdings and Chicago-based Verano Holdings Corp. and Green Thumb Industries.

The fourth product supplier in the state is NewCo., a subsidiary of New York-based DXR HoldCo., according to CT Insider.

Critics contend the small number of operators limits wholesale products and categories.

Data shows that retailers in other recently launched recreational markets such as Maryland have three times the amount of products available at their stores compared to Connecticut’s offerings.

Connecticut’s adult-use market opened in January with only 13 licensed companies of any kind, including seven stores, among the lowest contingent of any recreational launch in the country.

Production shifts alter landscape

Fine Fettle Dispensary, which operates four stores across the state, has seen its customer count remain fairly steady since the beginning of the year.

However, consumers and medical patients are making fewer visits these days, according to CEO Benjamin Zachs.

“Their recurring transactions have been a little less, and we think that’s because there hasn’t been as much choice.”

Anecdotal evidence and wholesale data suggest he’s right.

Before Fine Fettle converted three of its medical marijuana dispensaries to hybrid retail permits to serve adult-use consumers, its MMJ stores carried more than 400 stock-keeping units (SKUs).

“Now we have 120,” Zachs noted.

Since recreational sales kicked off, the industry executive said manufacturers have been limiting production runs of edible baked goods – instead favoring gummies, which are popular among adult-use consumers and less costly to make.

MMJ patients have also been affected by production shifts, industry sources tell MJBizDaily.

Manufacturers have cut or shortened production runs on more obscure MMJ product lines in favor of adult-use products that are more scalable and generate higher margins, Frytz contended.

These dynamics are stymying the full potential of the market, he argued.

“Medical patients have suffered because they can’t get quality products for what they want,” Frytz said.

“Eventually, when you have additional growers coming in and you have different levels of quality, then you’re really going to start to see the scalability of our market.”

A fifth cultivator and processor, Affinity Grow, recently began supplying the market, but the Portland, Connecticut-based company is considered a micro-cultivator, not a mass producer.

The outsized impact of MSOs

Data on wholesale cannabis product purchases also show a big discrepancy on category choice in Connecticut compared to other recently launched adult-use markets.

According to New York-based cannabis wholesale technology platform LeafLink – which tracks wholesale volume in the state through its online marketplace – the average Connecticut store purchased about 400 product SKUs in October, far fewer than counterparts in Maryland and Missouri.

In Maryland, where recreational sales kicked off July 1, the average dispensary in October purchased 1,200 SKUs, according to LeafLink data.

In Missouri, where adult-use sales started in early February, the average retailer purchased about 1,000 SKUs.

The lower SKU counts in Connecticut are driven by the outsized roles MSOs play in the vertically integrated market, LeafLink strategist Ben Burstein contends.

His case in point: Four out-of-state operators essentially grow and process Connecticut’s entire supply of medical and adult-use marijuana products, and they redirect a significant amount of that inventory through their own stores, effectively limiting product availability for rival retailers, market experts say.

MSOs also operate the vast majority of the state’s 27 operational cannabis retail locations.

“MSO stores are internalizing product at high rates, leading to less available shelf space for non-owned brands,” Burstein said.

In Connecticut, Curaleaf followed a blueprint it has used in other recreational markets, releasing a number of popular products such as its Select brand Cliq, Elite Live and X Bites as well as house-branded flower and high-dose edibles, spokesperson Jordon Rahmil told MJBizDaily.

“As the market and demand grows, we will continue to introduce new products that have seen success in other states,” she said.

“We expect sales to grow alongside an increase in SKU variety.”

Curaleaf, which has experienced steady sales this year at its four Connecticut outlets, expects a sales bump after regulators recently raised the cap on how much adult-use retailers can sell per transaction.

Under the new rule, which took effect Dec. 1, adult-use retailers can sell up to a half-ounce of flower or the equivalent, which would be up to 14 1-gram pre-rolls or eight 1-milliliter vape cartridges.

Other operators, however, told MJBizDaily the higher limit will have little impact on overall sales.

Market strategy boosts balance sheet

The wholesale strategy in Connecticut implemented by the state’s largest cannabis supplier, Verano, helped the company boost its top line in the third quarter.

The MSO reported $240 million in quarterly revenue, up 5% year-over-year, crediting increases in Connecticut wholesale revenue and Maryland’s adult-use launch for driving results.

“Connecticut continues to display strength with both retail and net wholesale revenue increasing each quarter this year,” CEO George Archos said during Verano’s third-quarter earnings call.

In Connecticut, Verano’s wholesale business is outperforming its retail side by a wide margin.

Wholesale revenue in the third quarter topped $14.2 million, outpacing its retail business ($7.5 million) by a nearly 2-to-1 clip.

Connecticut is the only market within Verano’s 13-state footprint where its wholesale business eclipsed its retail arm in the third quarter.

That distinction is significant, considering two-thirds of the company’s sales in the recent quarter were driven by retail.

Verano indicated it will continue its wholesale strategy in Connecticut as it expands its footprint statewide.

In October, the company opened Zen Leaf Newington, its second social equity joint venture in Connecticut and its fourth adult-use store in the market.

Verano plans to open four more social equity joint ventures in the state over the next year, according to company executives.

“Given capacities in the state and given our store-opening schedule, we intend to put more product onto our own shelves,” President Darren Weiss told analysts during the third-quarter conference call.

Chris Casacchia can be reached at chris.casacchia@mjbizdaily.com.