How to Calculate Your Total Addressable Market in the Cannabis Industry

Use your Total Addressable Market (TAM) to identify growth opportunities, make informed strategic decisions, and benchmark your brand’s market position against the competition.

Cannabis brands looking to dominate their market need more than just good products—they need to know how to find their Total Addressable Market (TAM). Cannabis-specific TAM is a market forecasting tool that pinpoints exactly where the biggest opportunities exist in the cannabis industry. In this blog, we’ll show you how to calculate your TAM, why it matters, and how it can drive smarter, more impactful decisions for your brand.

Understanding Total Addressable Market (TAM) 

At its core, TAM represents the total revenue opportunity available if your brand captures 100% of the market for a specific cannabis product or ancillary service. 

What Is TAM, and How Do Companies Use It?

TAM is often the first step in market sizing. It gives you a clear picture of the opportunity size within your industry, helping you determine whether the market is big enough to support your business goals. Companies use TAM to guide product development, market entry, and expansion decisions. 

But TAM isn’t just a theoretical exercise—it’s a practical tool used across various aspects of business strategy. For instance, during fundraising, a solid TAM calculation can demonstrate to investors that your cannabis brand has significant growth potential. 

In forecasting, TAM predicts future revenue streams, allowing you to make informed decisions about scaling operations. It’s also valuable in risk and opportunity analysis, weighing the pros and cons of entering new markets or launching new products. Additionally, TAM is a powerful benchmarking tool that enables you to compare your current market share against the total market potential, identify growth opportunities, and refine your competitive position.

The Importance of TAM in Business Strategy

TAM becomes an invaluable cog in the business strategy machine by helping you understand the total revenue potential in your corner of the cannabis market. It tells you where to focus your efforts, how to allocate resources, and how to position your brand against the competition. 

Now, let’s break down the role TAM plays in each aspect of your business strategy:

Focusing on Lucrative Segments

TAM zeros in on the most profitable segments of the cannabis market. Whether it’s high-demand products like CBD-infused wellness items, premium flower strains, or emerging categories like cannabis beverages, understanding TAM helps you prioritize where to invest your resources. 

Applying TAM Insights: If cannabis market insights show that edibles are gaining popularity among your target demographic, a precise TAM calculation can tell you whether to ramp up production or launch new product lines in that segment.

Tailoring Marketing Efforts

TAM also guides your marketing strategy by identifying the size and characteristics of your target audience. With this data, cannabis brands can craft more targeted and effective marketing campaigns that resonate with the most lucrative customer segments. 

Applying TAM Insights: If your TAM analysis reveals a strong market opportunity among health-conscious consumers, you might focus on educating this audience about the benefits of your clean, lab-tested cannabis products.

Resource Allocation

TAM powers the smart allocation of your budget, workforce, and production capacity to areas with the highest potential return on investment. This is especially important in the cannabis industry, where operational costs can be high due to regulatory compliance, supply chain complexities, and marketing restrictions.

Applying TAM Insights: If your TAM analysis indicates that demand for cannabis concentrates is outpacing that of other products in your portfolio, you might decide to allocate more resources toward increasing production capacity in that segment, streamlining supply chains, or securing additional regulatory approvals to meet the growing demand.

Competitive Analysis

If your TAM analysis shows that a significant portion of the market is underserved—perhaps in a specific geographic region or product category—this could be a prime opportunity for expansion. Additionally, leveraging cannabis market insights refines your TAM calculations to account for factors unique to the cannabis sector, like local regulatory environments and shifting consumer preferences.

Applying TAM Insights: Suppose your TAM analysis reveals that competitors focus heavily on urban areas, leaving rural markets underserved. You could seize this opportunity by directing your expansion efforts into these regions, offering tailored products or services that cater specifically to the needs of rural consumers.

The following section will show you how to calculate your cannabis-specific TAM. 

Steps to Calculate TAM in the Cannabis Industry

Calculating TAM in the cannabis industry involves three components: identifying the target market, market sizing, and utilizing BDSA’s data and market analysis. 

Identify the Target Market or Consumer Segment

First, clearly define your target market. Who do you want to reach? Are you aiming for recreational consumers? Pre-roll fanatics? Edible enthusiasts? Flower aficionados? You need to consider all factors that may affect your market scope, including geographic location, consumer behavior, and legal regulations. This sets boundaries for your market analysis and keeps everything relevant and focused. Identifying your target market can seem daunting, but BDSA Consumer Insights can be a powerful tool to determine which consumer segments to target.

Market Sizing

Once you’ve identified your target market, the next step is to size the addressable market. This involves estimating the potential customers within your defined market and multiplying it by the average revenue per customer. In the cannabis industry, this could mean analyzing data on the number of licensed cannabis consumers in a specific state, their average spending per person, and the penetration of various cannabis product categories. BDSA’s tools help you size the addressable market accurately, whether you’re looking at TAM by state, province, country, or specific category over the next five years.

BDSA Data and Market Analysis

BDSA’s market analysis tools provide invaluable insights for refining your TAM calculation. While Cannabis Market Forecasts offer rolling five-year projections to help you anticipate market shifts and identify growth opportunities, Retail Sales Tracking is particularly effective for calculating today’s TAM. This tool allows you to drill down into specific categories and subcategories, providing a granular view of current market conditions. Analyzing the current size and share of top brands and products allows you to accurately reference benchmarks at different stages of market maturity.

Evaluating Market Share 

Market share represents the percentage of total sales in a market captured by your brand, which directly reflects your brand’s success relative to competitors.

How To Assess Current Market Share

To assess your current market share in the cannabis industry, gather accurate data on your sales and those of your competitors. This includes retail sales figures, market size data, and category-specific performance.

A practical way to calculate market share is by using the formula:

Market Share (%) = (Your Sales / Total Market Sales) x 100

For example, if your cannabis brand generates $10 million in sales in a market worth $100 million, your market share would be 10%.

It’s also important to segment this analysis by product type, region, and consumer demographics to get a clearer picture of where your brand is performing well and where there is room for growth.

Factors Influencing Market Share

Several factors can influence your market share in the cannabis industry:

Regulatory Changes: Shifts in state and local regulations can either expand or contract your potential market. For example, cannabis legalization in new states can open up significant growth opportunities, while stricter regulations can limit market access.

Consumer Preferences: Trends in consumer behavior, such as a growing preference for edibles or pre-rolls, can shift market dynamics. Brands that adapt quickly to these changes can capture larger market shares.

Competitive Landscape: The entry of new competitors or changes in existing strategies can impact your market share. Monitoring competitors and staying ahead with innovation and unique selling propositions is key to maintaining or growing your share.

Product Availability and Pricing: Your ability to maintain consistent product availability and competitive pricing can also affect market share. Disruptions in supply chains or pricing wars can hurt or help your position, depending on how well you manage these challenges.

Opportunities for Capturing Market Share

Capturing cannabis market share requires strategic planning and an understanding of emerging trends and market dynamics. Here are key opportunities cannabis brands can leverage to expand their market presence:

1. Product Innovation and Differentiation

With consumer preferences shifting toward more personalized and specialized products, brands that can introduce unique formulations, such as minor cannabinoid blends or new delivery methods, will have a distinct advantage. As cannabis consumers become more educated, there is a growing demand for craft and artisanal products, particularly in mature markets. Brands that can differentiate themselves by offering high-quality, innovative products will be better positioned to capture and retain market share.

2. Expansion into Emerging Markets

As more states and countries move toward legalization, there are significant opportunities to enter new markets. For instance, states like Maryland and Alabama are expected to fully legalize adult-use cannabis, while New York continues to expand its legal market. Entering these emerging markets early allows brands to establish themselves before the competition becomes too intense. Additionally, exploring international markets, such as the growing opportunities in Europe, can further enhance a brand’s global footprint.

3. Strategic Partnerships and Collaborations

By forming strategic partnerships with other companies through joint ventures, co-branding, or distribution agreements, brands can expand their reach and leverage shared resources to strengthen their market position. This approach allows for pooling expertise and resources, making scaling and adapting to market demands easier.

4. Leveraging Data and Technology

Invest in robust digital infrastructure and leverage tools like BDSA’s market intelligence to gain deeper insights into consumer behavior, optimize supply chains, and tailor marketing strategies to target the most lucrative customer segments. This data-driven approach allows brands to be more agile and responsive to market changes, essential for capturing and maintaining market share.

5. Addressing the Illicit Market

In regions like California, where the illicit market still holds a significant share, brands offering competitive pricing and wide accessibility can draw consumers away from unregulated products. Expanding retail access and focusing on affordability while maintaining quality are vital strategies to outperform illicit operators and capture a larger legal market share.

Calculating TAM for Success in the Cannabis Industry

A clear understanding of your TAM is key to outpacing competitors and seizing new opportunities in the cannabis industry. By calculating your TAM, assessing market share, and capturing growth opportunities, your brand is well-positioned to lead in the cannabis market.

Elevate your cannabis brand with actionable insights from BDSA. Request a demo today and unlock the data-driven strategies to propel your business forward.