If the state of California were a country, it would have the fifth largest GDP in the world.
Take this kind of spending power and combine it with the recent legalization of recreational cannabis, and it’s fair to say that the Golden State is primed to become the Holy Grail of cannabis opportunities.
But while the market is home to immense potential, this doesn’t mean that the California cannabis business isn’t without its own unique challenges and obstacles to navigate.
Navigating California Cannabis
Today’s infographic comes to us from High Hampton Holdings and it helps set the stage for the boom in California, as well as listing the regulatory hurdles that companies must be prepared to deal with in the jurisdiction.
In the next year, it’s expected that recreational cannabis sales in California will surpass the existing total from the already established medical market.
By 2025, those recreational sales could be $4 billion per year – that’s five times the size of the medical market!
The potential of the California cannabis market may be obvious, but navigating both the state’s notorious regulatory system and tax regime is a clear threat for companies aiming to succeed in the space.
Since legalization, the price of cannabis in California has become an immediate hiccup that has initially angered consumers, reducing expected demand and state revenues.
According to BDS Analytics, the effective sales tax on a gram of cannabis bought in San Jose works out to a hefty 38%. Add this to the higher cost of doing business in the state, and the sticker shock for consumers is real.
After high taxes, companies entering the California market must also navigate the state’s complex rules and regulations about growing, distributing, and selling cannabis.
To give an idea of what this looks like for the average company, here is a brief snapshot of California’s regulatory environment:
- There are three governing bodies for cannabis in the state: California Department of Food and Agriculture (CDFA), California Department of Public Health (CDPH), and the Bureau of Cannabis Control (BCC)
- There is a dual licensing requirement in the state, in which companies must be licensed both by the state as well as by local authorities
- Companies must get their local license before their state license – and this is complicated: there are 58 counties and 482 incorporated cities, each with their own specific set of rules and requirements
- Currently, many growers do not meet state or local standards
- The supply of zoned, permitted areas for cannabis cultivation are scarce and in high demand
Even further, the rules around cultivating, distributing, and retailing all involve specific and highly-specialized licenses. For example, only those with a full-service distribution license can coordinate required third-party testing, ensure packaging reviews of products, and collect and remit cultivation excise taxes.
Despite the challenges that exist in the California cannabis market, it is still the undisputed jewel in the crown of the global legal cannabis space, offering access to 39 million consumers and large amounts of disposable income at play.
Only companies that can navigate this uncharted territory will be able to take advantage of this lucrative opportunity.
How Consumers Are Shaping Cannabis Consumption
Cannabis consumers could spend up to $10.5B on concentrates by 2022—and they’re increasingly relying on the influence of branding to make their choices.
How Consumers Are Shaping Cannabis Consumption
The cannabis industry continues to reach new heights, and according to market analysts, global legal spending on cannabis could reach $32 billion by 2022 — a majority of which is thanks to U.S. and Canadian consumers.
What’s driving the evolution of the market?
Cannabis is in the midst of a shakeup, and today’s infographic from Ionic Brands highlights how consumers are significantly shaping the landscape of cannabis.
Cannabis Concentrates: A New Frontier
For years, joints and blunts dominated the industry—but sales of traditional flower are swiftly losing ground to new products. Here’s how cannabis consumer spending looks across North America in a few short years:
|% Market Share||↓ 14pp|
From 50% to 36%
From 12% to 14%
From 23% to 36%
From 15% to 14%
Cannabis consumers are clearly moving away from simply smoking the product. Concentrates are the fastest growing industry segment, which is not surprising since they’re needed to make all sorts of products, from edibles to topicals and tinctures. Cannabis concentrates are also discreet, convenient, and more potent than other cannabis products, all of which contribute to their consumer appeal.
In fact, these changing preferences are disrupting other mammoth industries. Take JUUL Labs for example: the inconspicuous, smokeless device is chipping away at the tobacco industry, and now accounts for almost 73% of the e-cigarette market. JUUL’s growth is proof that consumers are driving the market, and this trend is also reflected in cannabis.
Among all cannabis concentrate types, vaporizers (vapes) overwhelmingly come out on top in established markets, accounting for 43% of sales in Colorado, 70% in Oregon, and 79% in California.
|Concentrate Sales (2018, Jan-Jun)||Vape||Wax||Shatter||Live Resin||Oils||Others|
Branding is Everything in Cannabis
The cannabis concentrates space is becoming increasingly sophisticated. With more money to be made from less product, concentrates offer higher margins as well. But in a fragmented market, brand recognition is arguably the biggest factor guiding consumer demand.
Returning to JUUL’s example, the company’s branding played a big hand in its accelerated trajectory—and in grabbing the attention of major players like Altria, the corporate parent of Marlboro. Altria made a landmark investment into 35% of JUUL in December 2018, bringing the latter’s value up to $38 billion.
In the nascent cannabis industry, consumers are still wondering who they can trust. A recent survey revealed that 72% of cannabis consumers rated branding as somewhat or very important in assessing a product’s quality and safety. Branded cannabis products are on the rise, but they’re not as established as Starbucks coffee or Apple iPhones quite yet.
When done right, cannabis concentrates brands are able to capture quite a significant chunk of the market:
Top 10 brands: 48.4%
All other: 51.6%
Top 10 brands: 46.6%
All other: 53.4%
Top 10 brands: 59.7%
All other: 40.3%
In a budding industry, such brand market domination is an impressive feat. However, a few barriers still stand in the way of these brands’ ability to scale on a national level: cannabis and related products aren’t legal in every U.S. state, while diverse state regulations also complicate the process.
Cannabis consumer brands that can spread out into multiple states, and develop consumer trust, will emerge as winners in this new, dynamic market.
The Allure of Craft Cannabis to Investors
Craft products are taking the retail world by storm. Find out why investors should be paying close attention to craft cannabis and its potential impact.
The Investor Appeal in Craft Cannabis
They say if you do what you love, then the money will follow. In the multi-billion dollar cannabis business, that has certainly proved true for those who have been passionate about the plant for decades — otherwise known as craft growers.
Today’s infographic from Pasha Brands dives into the huge consumer demand for craft products, and why investors should pay attention to this trend as it extends into cannabis.
The Perfect Craft Product
Chances are, you may have encountered any of the following at least once: microbrewed beer, specialty coffee, premium wine, or organic food. They’ve become so popular, that craft versions of all these are steadily carving a valuable niche in their original markets.
|U.S. Market Size, 2017||Craft Market Size, 2017||Share of total|
|Beer vs Microbrew Beer||$111B||$26B||23%|
|Coffee vs Specialty Coffee||$32B||$10B||31%|
|Wine vs Premium Wine||$80B||$44.8B||56%|
|Food vs Organic Food||$898B||$49.4B||5.5%|
Whether it’s introducing flavors into brews, slow-roasting beans, producing wine in small lots, or using a conscious “farm to table” label — what they have in common is the careful attention that’s paid to the process from start to end.
Craft cannabis bears a strong resemblance to all of these in that way, as growing it involves extra care, compared to large-scale producers. For example, hand-trimming is more labor intensive than using machines, but results in products with superior quality.
What are some other characteristics of craft cannabis?
- Attention to detail
A hands-on approach allows growers to personally ensure each cannabis plant is healthy.
- Sustainable practices
The use of organic farming to save energy, creating a smaller environmental footprint.
- Social responsibility
Smaller growers typically leverage local connections, creating employment opportunities.
- Artisanal branding
Sophisticated and modern packaging helps appeal to different types of craft cannabis consumers.
It’s clear why consumers care about craft cannabis. But what does it offer investors?
Making the Case for Craft
Investors should be paying close attention to craft cannabis for three key reasons: a higher price point, a focus on quality, and access to the retail market.
Upscale Price Tag
On average, organic cannabis has a higher price point attached to it, compared to regular grade cannabis.
- Industry average: $9.02/ gram
- Organic average: $11.40/ gram
Using organic methods to grow cannabis means that the final product on shelves boast an enhanced potency and effect. Since craft cannabis is also grown organically, it’s clear that consumers are willing to spend more to secure a premium product.
Promise of Quality
It might not come as a surprise that the most famous craft cannabis regions are also where the biggest volume of legal cannabis sales come from. California and Canada accounted for nearly 38% in global market share in 2017:
- Worldwide sales: $9.5 billion
- California sales: $3 billion
- Rest of U.S. sales: $5.5 billion
- Canada sales: $0.6 billion
- Rest of world: $0.4 billion
These two areas have a foothold in cannabis sales, and with recreational legalization unfolding in both – and 75 million people living between the two jurisdictions – it will only continue to grow.
Opening the Doors
Following nation-wide legalization in Canada and an increasing number of states in the U.S., the continent is facing a cannabis shortage. Why? As it turns out, while craft growers are abundant, they still face regulatory hurdles in order to move from the “gray” underground market into launching legal operations.
Craft cannabis could be a cornerstone for industry growth, but its growers have been in the shadows for a long time. As cannabis gains momentum, tapping into the huge network of craft growers will be key for success.
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