Biggest Challenges for the Cannabis Industry in 2024

The cannabis industry has grown dramatically in recent years in response to expanding legalization and a flood of capital from venture capital firms and other investors. In 2023, voters in Maryland and Missouri approved the legalization of recreational marijuana, bringing the total to 24 states and the District of Columbia. An additional 14 states and three territories have legal or decriminalized medical use of cannabis products.

The legalization and sale of cannabis are advancing rapidly not only in the U.S. but globally. Global cannabis sales are expected to increase from $13.4 billion in 2020 to $148.9 billion by 2031. That growth opportunity has spawned a long list of startups, IPOs, and also a wave of cannabis-related mergers and acquisitions (M&A) involving companies in production, distribution, real estate, retailing, and other areas.

Despite that growth, the global COVID-19 pandemic created a major upheaval in the cannabis industry, and the industry has continued to face major challenges in 2024.

Here is a look at the year ahead.

An Ever-Changing Landscape

As the industry grows, it has to adapt to a fast-changing, complex legal landscape. Cannabis companies' challenge is that different states within the U.S. as well as different countries have varying laws applying to the legality, use, distribution, and growth of cannabis.

As the legal cannabis industry continues to mature, more established companies outside of the industry are expanding their foothold. The so-called "addiction" industries—alcohol, tobacco, and pharmaceuticals—have been heavily investing in the cannabis market. They have been acquiring many companies with the intent of selling cannabis en masse as they do their own products. In the process, entirely novel lines of cannabis-infused products have launched, including cannabis drinks marketed as an alternative to alcohol. These trend could dramatically transform the cannabis industry.

The COVID-19 Pandemic's Effects on Marijuana Use

The COVID-19 pandemic is affecting how many people use cannabis for medical uses and how much. That's because the pandemic has taken its toll on people's mental health globally. There were 53.2 million additional major cases of depressive disorder and 76.2 million additional cases of anxiety disorders globally due to the pandemic in 2020, according to a study by The Lancet in October 2021. It's no surprise, then, that the global medical cannabis market is predicted to grow at a compound annual growth rate (CAGR) of a whopping 26.6% from 2019 through 2027.

To be sure, the pandemic hasn't boosted use on every front. A study led by researchers at the University of Michigan focused on adolescent drug and alcohol use. The study found that marijuana use among adolescents has not changed significantly during the pandemic, though the study also noted a record decline in the perceived availability of marijuana.

The U.S. Market

The U.S. market remains highly complicated for cannabis companies and investors. As mentioned above, just under half of U.S. states and territories have legalized recreational cannabis use as of March 2024. This limited legality exists even though most Americans think that marijuana should be legal for recreational or medical use, according to a Gallup poll conducted in October 2023. As many as 70% think it should be legal for recreational use, while 29% think it should not be legal.

Lobbying for federal legalization of marijuana has picked up as the industry expanded. Banks, tobacco and alcohol companies, and other corporations have joined union advocates, personal-use supporters, and social-justice activists in pushing for federal legalization.

In July 2021, three U.S. Democratic senators—Senate Majority Leader Chuck Schumer, Finance Committee Chairman Ron Wyden, and New Jersey Senator Cory Booker—unveiled a discussion draft of a bill that seeks to legalize cannabis at the federal level. The draft bill, known as the Cannabis Administration and Opportunity Act, would allow adults to buy and possess up to 10 ounces of marijuana without facing criminal penalties. The bill also would eradicate non-violent marijuana crimes, advance medical research, and allow cannabis companies access to basic financial services, including bank accounts and loans. The bill was introduced in the Senate in July 2022 and there have been no further developments as of Nov. 2022.

In November 2021, Republicans in the U.S. House of Representatives led by Nancy Mace of South Carolina introduced separate legislation seeking to decriminalize marijuana at the federal level. Known as the States Reform Act, the bill would also remove legal hazards faced by cannabis-related businesses and regulate cannabis use like alcohol use. The act differs from the Democratic draft bill proposed in July in a number of significant respects.

In Nov. 2022, voters in Arkansas, North Dakota, and South Dakota voted against proposals to legalize recreational marijuana. This suggests that public opinion is varied across the U.S. and that passage of a broader federal legalization bill may be difficult to attain for the time being.

Another issue is banking. Congress has yet to lift banking restrictions on cannabis companies, which has limited their access to capital. The Secure and Fair Enforcement (SAFE) Banking Act would prohibit federal regulators from penalizing financial institutions for providing services to state-legal marijuana-related businesses. It has passed the House seven times, most recently in June 2022, but never made it through the Senate.

Rising Interest Rates

Like any young industry, cannabis companies need to raise capital in order to finance future growth. Due to their precarious legal status, cannabis companies do not enjoy the access to banking services that many other companies enjoy. This makes raising capital harder and increases its cost. Low interest rates, however, have made those costs relatively cheaper in recent years. The industry may face mounting challenges in 2023 following a series of Federal Reserve rate hikes.

The Bottom Line

Though the cannabis industry is growing and its use is becoming more accepted in society, it faces major challenges. These trends also will create a volatile and fast-changing environment both for investors and cannabis companies in 2024. For investors, the big challenge will be deciding which of the scores of startups, IPOs, and established cannabis companies can surmount the upheaval and succeed long term.