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Why Retail Cannabis Could Be the Next Big Investment Boom

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Imagine being an investor in Microsoft at the time of the company’s IPO in 1986. Or better yet, buying Amazon shares while it was still just an aspiring online book store in the late 1990s.

Chances to be an early adopter in the next billion-dollar industry are far and few in between – but it’s exactly what is happening today with the nascent cannabis market. After close to a century of prohibition, cannabis is back in the limelight as legalization rolls across the U.S. and Canada.

Visualizing the Retail Boom

Today’s infographic from Choom Holdings Inc demonstrates the consumer interest in retail cannabis, and the challenges and opportunities that come with this potential.

Retail Cannabis Investment Boom

Legal cannabis today is a lucrative modern market in the U.S. and Canada. In 2018, sales were $10.8 billion – and they are expected to grow to $47.3 billion by 2027.

Who’s driving this growth? A recent survey reveals that:

  • 58% of U.S. cannabis consumers use it at least once a week
  • 66% of these weekly users are millennials, aged 18 to 34
  • 46% of cannabis consumers who also drink, prefer it over alcohol
  • 74% of cannabis consumers who also drink, believe it to be safer than alcohol

With more people using cannabis frequently, the disruptive potential of retail cannabis becomes clear.

The Cannabis Supply Issue

Colorado, Washington, Nevada, and most recently California have been among the major U.S. states to legalize recreational cannabis in recent years.

Although cannabis sales across all states have soared, there’s one caveat to mention, which is clearly seen in the case of California. As the state began selling cannabis in stores on January 1st, it also simultaneously ran out of supply when the grey market came rushing up.

This trend of pent-up demand is clear across both mature and new markets – even Canada couldn’t escape the same supply crunch, subjecting customers to long lines and wait times on day one of legalization. For example, only one legal retail store was open in the entire province of British Columbia on October 17th.

It’s not surprising to see why cannabis is such a valuable retail product, though: dispensaries typically outsell Whole Foods and other similar retailers.

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(Source: Marijuana Business Daily)

The Value Play in Cannabis

Seizing an early adoption opportunity is a best-case scenario in the investing world.

Today, such an opportunity may come in the form of retail cannabis. The segment still faces specific hurdles, but these challenges have the potential to convert into golden opportunities as the market matures in North America:

1. Inherited demand
Legal retailers will reach new consumers as the grey market begins to come online.

2. Strong foundation
Retail cannabis is only legal in ten U.S. states, but it already shows strong promise.

3. Building bridges
Retail cannabis stores are just now opening in Canada, but licenses are hard to get.

Retail cannabis is a brave new world for consumers and investors alike – and early entrants to the industry with access to capital and a large retail footprint will likely lead the charge.

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Cannabis

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.

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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:

Product typeFlowerEdiblesConcentratesOther
2017$4.2B$1B$1.9B$1.3B
2022E$10.5B$4.1B$10.5B$4.1B
% Market Share↓ 14pp
From 50% to 36%
↑ 2pp
From 12% to 14%
↑ 13pp
From 23% to 36%
↓ 1pp
From 15% to 14%
CAGR20%33%41%26%

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)VapeWaxShatterLive ResinOilsOthers
Colorado$97M$17M$16M$29M$12M$14M
Oregon$60M-$10M$4M$5M$8M
California$282M14M$14M$21M-$42M

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:

  • California
    Top 10 brands: 48.4%
    All other: 51.6%
  • Colorado
    Top 10 brands: 46.6%
    All other: 53.4%
  • Oregon
    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.

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Cannabis

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.

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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, 2017Craft Market Size, 2017Share of total
Beer vs Microbrew Beer$111B$26B23%
Coffee vs Specialty Coffee$32B$10B31%
Wine vs Premium Wine$80B$44.8B56%
Food vs Organic Food$898B$49.4B5.5%

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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