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US marijuana business licensing declined for the first time in 2023

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After years of double-digit growth, active marijuana business licenses in the United States declined for the first time in 2023.

That’s according to a new report by CRB Monitor, a cannabis intelligence firm in Nashville, Tennessee, that tracks and monitors licenses.

Active U.S. cannabis business licenses – including those in medical and recreational marijuana markets – declined 4% from 2022 to 2023.

By contrast, the number of active Canadian cannabis business licenses increased 2% during the same period.

The total number of active licenses in the two countries combined had been doubling nearly every year since 2019.

But signs of a plateau appeared in 2022, when year-over-year growth slid to 28%.

In fact, the number of active U.S. and Canadian marijuana licenses peaked at 51,000 during the first quarter of 2023; active licenses slipped later in the year, which ended with roughly 49,200 active licenses, a 2% decrease from 2022.

CRB Monitor CEO Steve Kemmerling believes the plateau might be good for the industry.

“The leveling off of license counts reflects a natural consolidation of a new market entering its early adolescence,” he told MJBizDaily.

“As painful as it is for individual participants caught up in it, (consolidation) is a healthy reaction that will set up the industry for sustainable future growth.”

U.S. cannabis licensing

The number of active U.S. cannabis licenses peaked at about 44,300 during the fourth quarter of 2022.

Even with a strong pipeline of new marijuana business licenses in 2023, roughly 1,900 active licenses had been abandoned or lost by the end of the year.

The number of approved licenses – newly licensed cannabis businesses that have yet to begin operations – surged 23% in 2023, with the most growth happening between January and September.

The introduction of new licenses in 2023 – mostly in new and expanding markets – could not keep up with the losses happening in mature markets, where operators experienced financial distress.

And license applications – those pending approval – peaked in the first quarter of 2023 at about 8,900, only to decline sharply to end the year down 20% from 2022.

New and expanding state markets created the most growth in domestic cannabis business licenses.

Marijuana regulators in New Mexico, New York and Vermont approved hundreds of new business licenses each in 2023.

New Mexico led the nation with more than 600 new active licenses added since 2022.

New York's regulated marijuana market finally expanded after many delays, adding roughly 360 licenses in 2023, while Vermont's market contributed 239 new licenses during the same period.

Michigan added nearly 550 active licenses in 2023, making it a rare exception among mature markets - those with three or more years of sales - as other mature markets experienced varying degrees of license loss.

California, which has struggled with declining sales because of pressure from the illicit market and high taxes, saw license numbers contract more than any other state - although California arguably had the most to lose as the world's largest cannabis market.

The state shed about 2,300 active licenses in 2023, a decline of 19% overall.

Other mature markets that lost active cannabis business licenses in 2023 included Colorado, Illinois, Nevada and Washington state.

Vertically integrated licenses decline

The number of active vertically integrated cannabis business licenses declined more sharply than other license types, with active licenses falling 42% between 2022 and 2023.

According to CRB Monitor, 2023 was the second year that vertically integrated licenses declined: Those numbers fell 22% in 2022.

By the fourth quarter of 2023, there were only 875 active vertically integrated licenses in the U.S., an 11% drop from the previous quarter.

The decline can be attributed to the withdrawal of multistate operators from recreational markets, such as Curaleaf Holdings exiting California, Colorado and Oregon in early 2023.

Kemmerling calls the pattern "revenge of the OGs," as many large vertically integrated operators failed to reap the benefits of scale and struggled against local producers and retailers.

"The original thesis of the vertically integrated, multistate operator having the advantages of scale and capital to dominate the regulated cannabis market has been thoroughly refuted," Kemmerling said.

"The economies never materialized, and the capital has been torched."

Canadian market powers on

Despite a number of retail closures, the number of active Canadian cannabis licenses reached a milestone in 2023.

Active marijuana licenses increased 2% year-over-year in Canada, ending 2023 with 6,860 licenses, according to CRB Monitor.

Meanwhile, Canadian recreational cannabis sales increased 12% during the same period, reaching $3.8 billion (5 billion Canadian dollars) in 2023.

The pipeline of upcoming licenses - those pending approval - declined 13% to 291 in 2023 and 45% since the first quarter of 2022.

Pending licenses in Canada averaged just three per quarter in 2023.

"Canada’s older and federally regulated cannabis market gives us a glimpse of how a more mature and integrated U.S. market might look in the future," Kemmerling said.

"Notably, the producer-and-retailer ratio needs to be closer to 1-to-2, rather than the current U.S. numbers of 2-to-1.

"No other agricultural product has twice as many farmers growing it as shopkeepers selling it."