Hartford Business Journal

30 HARTFORDBUSINESS.COM | JANUARY 8, 2024 INDUSTRY OUTLOOK | CANNABIS A look inside CTPharma's grow facility in Rocky Hill. More grow facilities are expected to debut in Connecticut this year. HBJ PHOTO | STEVE LASCHEVER New cannabis businesses set to launch in 2024, while sector keeps eye on federal reforms By Skyler Frazer sfrazer@hartfordbusiness.com T he state's recreational cannabis market got off to a slower-than-expected start in 2023, but the industry expects further growth in the year ahead. The adult-use industry recorded $127.5 million in sales through 10 months in 2023, and generated over $12 million in tax revenues, according to data from the state departments of Consumer Protection and Revenue Services. Since the market launched, the industry has grown to include 27 dispensaries as of mid-December. However, the four growers that previously served the state's medical marijuana program remain the only active cultivators in the state. More growers are expected to begin operations this year. Here are some cannabis industry trends to watch in the year ahead. New businesses, products enter market The biggest trend in 2024 will likely be the entrance of new retailers, manufacturers and products, said Benjamin Zachs, chief operating officer of Connecticut-based Fine Fettle, which currently operates four cannabis dispen- saries in the state and is building a 45,600-square-foot grow facility in Bloomfield. With several potential growers already in the licensing pipeline, at least one or two will likely begin production this year, said Sarah A. Westby, a partner at law firm Shipman & Goodwin, who chairs the firm's cannabis team. New dispensaries will also come online, she said. "Several retail equity joint venture stores received provisional approval in 2023, and will likely open in 2024," Westby said. "The opening of additional retail stores across the state, coupled with the anticipated launch of new culti- vation businesses, should result in increased retail cannabis sales, which have flattened in recent months." New to market will likely be the first food and beverage businesses. "I expect to see a host of new products come to market, including drinks, new types of foods, fast-acting products, and micro-dose and entry- level choices," said Benjamin H. Pomerantz, a partner at Carmody Torrance Sandak & Hennessey, who leads the law firm's cannabis industry group. "A more robust selection of products will enhance the consumer experience." Still, many will be keeping an eye on how many licensees, especially those in the provisional stage, actually come online in 2024. Cannabis startups continue to struggle with financing and finding adequate locations to operate their busi- nesses, said Drew Richards, a director at national accounting firm Marcum, who works with cannabis companies across New England. "The more time that passes, the more I can see investors becoming anxious and unwilling to continue to have their money sit stagnant; or even to continue to fund these companies that have yet to become operational," Richards said. Regulatory changes Carmody's Pomerantz said cannabis businesses will closely monitor Connecticut's 2024 legisla- tive session for potential changes to how the adult-use market oper- ates. Changes were made during last year's session to the 2021 law, and more are expected as the industry matures. State officials this year are expected to discuss parameters for a second business license lottery. The state initially planned for two lottery rounds in 2022, but only one has occurred. Federally, Westby said the poten- tial rescheduling of cannabis from a Schedule I to a Schedule III drug could be a huge boost for the industry. That was reportedly recommended last year by the Department of Health and Human Services to the Drug Enforcement Administration. Such a move would make it easier for cannabis companies to operate, Westby said. The Schedule I status "prevents cannabis companies from deducting ordinary business expenses from their federal tax obligations" through Section 280E of the Internal Revenue Ben Zachs Drew Richards Sarah A. Westby Benjamin Pomerantz $20M $15M $10M $5M • MEDICAL MARIJUANA • ADULT-USE 2023 CT cannabis retail sales by month JANUARY FEBRUARY MARCH APRIL MAY JUNE JULY AUGUST SEPTEMBER OCTOBER NOVEMBER Source: CT Dept. of Consumer Protection

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