CANNABIS INDUSTRY 2021: HOW HIGH?
The U.S. cannabis market is projected to grow 181% over the next three years, reaching $130 billion by 2024. However, according to the U.S. federal government, the distribution and sale of cannabis is illegal. It is designated as a Schedule I controlled substance. Despite cannabis’ federal status, 36 states have passed legislation allowing for state-wide legal medical marijuana usage. Including New York, which recently decriminalized marijuana, fifteen of those states have fully legalized recreational cannabis. These measures are paving the way for unprecedented expansion in the industry.
The history of legalization in the United States is relatively recent. In 1996, California became the first state to decriminalize marijuana and allow medical usage programs in the state. Washington and Colorado passed legislation in 2012 permitting recreational usage. In 2014, President Obama directed the D.O.J. not to interfere with the growing number of states that allow “distribution, possession, or cultivation of medical marijuana.” This decision helped push industry growth. In 2019, the M.O.R.E. Act was introduced in the House of Representatives. This bill proposes complete federal decriminalization of marijuana. Although it was delayed due to COVID-19, the bill was eventually passed in late 2020 by 228 votes to 164 votes in House of Representatives. It is currently under consideration in the Senate. Given the razor thin majority held by Democrats in the Senate, it is unclear if the bill will pass on the Senate floor. In her role as a senator before taking office in 2021, Vice President Kamala Harris sponsored the Senate version of the M.O.R.E. Act which strongly indicates the Biden White House’s position on this issue. There is a real possibility that marijuana will be decriminalized nationwide sometime within the next 3 years. Although there is still stiff resistance to legalization in some areas of the country, polling shows that two thirds of Americans feel marijuana should be legal. This fact is spurring a remarkable amount of private investment in the space.
HISTORIC GROWTH DRIVERS
Over the past decade, medical marijuana has been the largest driver of growth, which should not come as a surprise since medical usage is legal in most states. Demand for medical CBD products has skyrocketed as the baby-boomer generation continues to age, leading older populations to seek pain relief products.
The cannabis industry has proven resilient during COVID-19, with some Americans experiencing more leisure time due to quarantines and more discretionary income due to less spending on travel and entertainment. In fact, many cannabis related businesses have reported increased staffing to deal with rising levels of public demand.
THE FUTURE OF CANNABIS
In the coming decade, experts believe medical cannabis will no longer be the largest driver of growth. If recreational marijuana is legalized at a federal level, this will allow a wide variety of industries to enter this incredibly lucrative market. The emerging cannabis industry can be divided into two main categories: CBD and THC products. CBD and THC are both compounds found in cannabis plants, but they have some important differences and effects on humans. CBD is non-intoxicating, and it does not produce the high that is associated with marijuana. CBD has a soothing/calming effect, and has many applications in the medical and health sectors. THC does provide that euphoric high that most consumers associate with marijuana. If a cannabis product has a high THC to low CBD ratio, that cannabis product will be considerably more potent compared with a low THC to high CBD ratio product. CBD will likely be a significantly larger segment moving forward because it has more mass market appeal; however, there is still space for high THC products. The high THC market will move away from “getting stoned” to more controlled methods like micro-dosing, which will allow for small controlled highs. Broadly speaking, the industry is moving away from smoking or vaping as the primary consumption method. Industry insiders say the future of the legal cannabis market will be CBD and THC cannabinoid-containing products. These types of cannabis-infused products are used to create things like concentrates, oils, edibles, and beverages.
CBD DRINKS AT THE PARTY
Currently, the THC and CBD beverage market is relatively niche. These drinks only account for roughly 3% of the greater cannabis market, but this product category has real potential. Aaron Silverstein is the Managing Director at BevZero, a growing cannabis-infused beverage company based in Santa Rosa, California. Silverstein says, “Cannabinoid-infused beverages are the future of not only cannabis consumption but also the future of adult beverage consumption.” Recent studies show declining alcoholic beverage sales among young adults as they move away from traditional adult beverage consumption like beer and wine. Silverstein and other cannabis beverage executives feel there is a strong opportunity to market cannabis beverages as healthier alternatives to traditional beers and alcohols. These unique alternatives to cannabis smoking and vaping show real promise. The cannabis analytics firm, Headset, reports, “sales of marijuana-infused beverages increased 40.3% [in 2020] versus 2019 across recreational markets in California, Colorado, Nevada, Oregon... and Washington state.” This category has huge potential since it is still “a small portion of the overall marijuana product mix” in the United States.
NOT JUST BROWNIES ANYMORE
The U.S. cannabis edible market is “no longer limited to homemade brownies and cookies. Edibles today include gummies, breath strips, chocolates... mints, gum, popcorn, potato chips, etc. – if you can imagine it, someone can make it.” Some experts say the edible market could be worth “$4.1 billion in Canada and the United States by 2022.” As smoking rates among Americans continue to plummet, the cannabis industry is reinventing the way customers consume marijuana. Edibles are a promising alternative to smoking or vaping. According to states like California, Washington, and Colorado, over 50% of cannabis products sold within the state were cannabis edible products. Because these markets are significantly more developed, this data is a key indicator of the future trends shaping the cannabis industry. This rapid growth in cannabis edibles will also affect the broader food service industry. “Luxury cannabis bars and cafés are popping up” around the country. As edible cannabis consumption options continue to grow and diversify, it will continue to drive consumer awareness and will in turn drive sales growth in this category.
The cannabis industry is also poised to disrupt the cosmetics industry. Experts forecast that the CBD cosmetics and skincare industry will be worth nearly $1 billion USD by 2024. In 2019, Cronos Group, a growing cannabinoid conglomerate, bought the “luxury CBD brand Lord Jones — the first-ever CBD brand sold in Sephora — for US$300 million.” Similarly, Canopy Growth “acquired U.K. skin-care company This Works for $73.8 million in cash to enter the European CBD wellness market.” These kind of CBD skin creams and lotions provide “serious antioxidant and anti-inflammatory benefits which can be beneficial in treating skin concerns like inflammation, dryness and free radical damage.” Additionally, there is some research to suggest that CBD might “be effective in fighting acne” and could help treat “eczema and psoriasis as well.” As this market develops, consumers will soon find store shelves offering everything from CBD-infused lip balms to skincare creams/lotions.
Given the current conflict between federal and state law, all cannabis enterprises must remain totally intrastate. Meaning, all cannabis products sold within a state must also be grown in that same state. This is currently a major limiting growth factor on the industry because it requires multiple licenses and redundant operations across several markets. Because cannabis operations can not operate across state lines, competition in this industry is incredibly high. There are no dominant players in the U.S. cannabis industry. If legalization happens at a federal level, this would dramatically change the landscape and open up opportunities for a company to rise as a market leader.
CASTUS is experienced in the US Cannabis industry. We can help you navigate the complexities and capture a part of this massive business. Let’s talk.