As prohibition lifts an ugly grasp on cannabis, the new market prospers. BDSA is an analytics firm that tracks the industry through an enormous point-of-sale network. A recent report by the firm suggests global cannabis sales will grow to $57 Billion by 2026.
This author spoke with the Founder and CEO but also Andy Seeger who serves as one of the BDSA’s Director of Analytics. Seeger gave insight into the US cannabis market’s current era.
We’re now in an innovation 2.0 wave based on price. And that’s at both ends. We’re seeing bulk where full ounces are dominating the market in Colorado, even though it’s an ounce daily purchase limit. All the way down to Illinois, where they’re selling a 0.3 G chillum for $12 — that’s a thirty-six dollar gram.
Whether it’s one gram cartridges taking over vapes because the price got so low — or sample and trial in Illinois because the price is so high — price realization is driving a lot of the innovation, accessibility, and trends in the market right now.
Quality as global cannabis sales grow
BDSA expects Illinois to reach $2B in total cannabis sales in 2022, a 14% increase from last year. Following their most recent report, this author discussed the growing market with BDSA’s founder and CEO, Roy Bingham. During a price reduction, though, quality can be partially maintained through product diversification.
I think there is a difference if you’re talking about flower versus vaporizer products — possibly. But certainly if you’re talking about edibles.
There’s a lot of competition in the mature market. And there is an excess supply in some situations. So the price is a byproduct of that, isn’t it, as the price has been going down for the last year in the mature markets.
Product appreciation is found in the right lane
Brand reputation and consistency are vital for more processed Consumer Packaged Good [CPG] markets such edibles and vapes, according to Bingham. Whereas the quality of dried flower, while less laborious to produce, is more multifaceted.
Now, I don’t know that there is necessarily a trade-off between price and quality in cannabis — perhaps not. When you’re talking about relatively processed products like vaporizers and edibles, I am not sure if there is very much difference to be determined. Except, maybe, a lack of innovation if prices are low. There is less incentive for companies to come up with the next new thing or the next new technique.
But when you’re talking about flower, I guess there’s a possibility that cutting corners in various grow stages might lead to a lower quality product.
On the consumer side, Seeger noted that top-tier products are conversely becoming more affordable on the market.
Infused pre-rolls offer a higher value proposition than regular prerolls that are now comparable to very cheap flower everywhere else. We’re seeing those [infused pre-rolls] take off with additives of keif or wax.
We’re seeing rosin being pushed into edibles and cartridges at accessible prices, or higher-order cannabinoids now utilized in lower-order formats. So the quality is there. But the price is just affecting quality, and now consumers expect it.
Mapping the state-to-state roll-out
BDSA released their report this morning highlighting new market strengths contrasting flat mature states. Do you see advantages or disadvantages to the slow state-by-state rollout compared to immediate federal legalization?
I think, historically, there have been some advantages to a state-by-state rollout. Some companies were able to build a very solid base in their own state before facing the challenges of logistics and other challenges of trying to expand very rapidly over large distances.
We’re probably at the point where federal legislation would benefit the consumer the most and probably many of the large and well-established companies. And, of course, it’s not just a benefit from the point of view of being able to grow and distribute cannabis products. It’s also a benefit from access to banking and financial services and other services that are not readily available to the industry because of federal legislation.
Lessons for upcoming markets
The cannabis market currently still under values accountants. And Bingham noted a major issue with taxation. But he instead warned nations preparing for cannabis legalization, such as Germany and Mexico, of potential supply shortages.
Even if you go far enough back to the medical-use market, there was a supply problem at the beginning. And that could last anywhere from a few months to several years.
It’s difficult to anticipate the level of demand and build a supply chain capable of coping and flexing without taking outrageous risks and bets as a business. And then I think the other thing we see is usually there is a category of product format.
You basically sell out of your flower each time before you’ve actually get far enough down the pipe to start to produce those alternative products.
BDSA’s report discusses Oregon and Washington’s moratorium to slow the oversupply problem. Bingham called their oversupply a different problem that occurred six or seven years later.
And, of course, it’s associated a lot to do with the legal status of the market and the extent of which there is an illicit market. And also what’s happened to prices as well — so you can end up in a situation of massive, oversupply.
Advantages and shortfalls of a federal bill
National legalization would alter the course of the entire market. While that bill could take until at least 2026 to come into force, it might lead to a short-term fallout amidst great potential.
You have growth and processing facilities established in every state. They would be needless if you could transport your product across state borders. And then you’ve got a lot of suboptimal operations in terms of scale.
BDSA’s Founder and CEO remarked on the classic cannabis industry trend. That is, licensed producer with deep pockets and a lack of know-how frequently enter the competitive market with a trajectory half-a-country wide.
And therefore, much more efficient because there are a lot of economies of scale in the production of cannabis products.
Corporate LPs perpetually attempt to encompass smaller competition. Yet, the Globe’s cannabis market has room to grow — from 30$ billion in 2021 to 57$ billion by 2026.
[The industry) will have its rapid growth years and more challenging years — like this year for the mature markets. But we will see its overall growth outstrip any other food and most other CPG category.Roy Bingham
The cannabis industry hosts new markets with unusually prosperous values. In contrast, sales flatline after maturation. New markets are, therefore, projected to support global cannabis sales growing until 2026.