Tax Policies a Key Driver Along with Lack of Momentum on Cannabis Reform
PORTLAND, OR – Apr 9, 2025 – Whitney Economics (WE), a global leader in cannabis and hemp business consulting, data, and economic research, today announced it is reducing its 2025 – 2030 forecast for the U.S. cannabis retail market by $21.1 billion compared to its forecast a year ago.
According to the forecast, U.S. tax policies are a key driver along with a lack of momentum in federal cannabis reform and pricing compressions.
Aside from outlier states like New York and Maryland, whose 2025 forecast was increased by $1.04 billion and $100 million respectively, the remainder of states with legal recreational markets experienced a reduction from last year’s forecast. The most significant drops for 2025 revenues are in California ($606 million), Illinois ($497 million), Arizona ($425 million), Colorado ($183 million), and Washington State ($179 million).
WE forecasts that the U.S. legal retail cannabis market will be for 2025 is $34.0 billion, an increase of 13.1% from 2024, when legal sales came in at $30.1 billion. This forecast in 2024 95.6% accurate from when we published it in Q1’24.
“Our updated forecast from this cycle has some pretty significant changes,” Whitney Economics founder Beau Whitney said. “The forecast for 2025 was lowered from last year’s by $1.2 billion, and the 2025 – 2030 legal retail cannabis forecast was reduced by $21.1 billion since our last update.”
Whitney said there were several key drivers that resulted in the reduction of its forecast:
- Price compression driven by oversupply:The U.S. cannabis market is over supplied and has too much cultivation capacity, and, based on an analysis of the U.S., there is more supply authorized by state regulators than there is demand throughout the entire U.S., both legal and illicit, which is driving down prices to such an extent that it is impacting state tax revenues, operator profitability and is increasing business failures.
- Local and state taxation is impacting legal participation: Consumers are price sensitive and are willing to pay a premium in price relative to the illicit market in order to participate in the legal market, just as long as that pricing differential is not too great. However, a recent analysis of state and local cannabis prices indicated that states with high taxes are lagging behind other states in terms of the percentage of legal participation.
- The influence of substitute products:One of the reasons cannabis consumers are so price sensitive is that there are substitute products available, such as hemp-derived products. Given a choice of illicit suppliers, hemp suppliers and suppliers in other states, the consumer now has more options available to procure cannabis products outside of the traditional channels.
“Lower prices, lower participation and more substitutes will result in lower revenues,” Whitney said. “As such, we were forced to reduce our forecast. Both short-term and long term growth are lower than we’d expected.”
About Whitney Economics
Portland, Oregon-based Whitney Economics is a global leader in cannabis and hemp business consulting, data, and economic research, supporting hemp and cannabis operators, investors and regulators. Whitney Economics does not take a position on the legalization of cannabis, nor does it take positions on proposed legislation. Visit whitneyeconomics.com.
