November 25, 2016
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I spent the past week at the Marijuana Business Conference & Expo (MJBIZCON) in Las Vegas, Nevada where Cannabiz Media launched our new Marijuana Licensing Reference Guide: 2017 Edition as well as the Cannabiz Media Database and Directory. More than 10,000 marijuana industry professionals attended the conference where everything from new states entering the medical and retail markets to the effects of a new Presidential administration will have on the future of the industry.
During the keynote presentation, Marijuana Business Daily Editorial Director Chris Walsh covered a variety of 2016 highlights and trends that succinctly explain how the industry has evolved over the past 12 months. As someone who tracks marijuana licenses on a daily basis, my interest was piqued as the discussion focused on trends that would affect marijuana business growth in the future. In the Marijuana Licensing Reference Guide: 2017 Edition, the Cannabiz Media research team and I identified 10 key areas that affect marijuana business growth, and several of the market trends Chris discussed tie directly to those 10 areas.
Here are my thoughts on eight of the marijuana industry trends that will affect the future growth of marijuana businesses:
We’re seeing states that have participated in the marijuana industry loosening regulations and even legalizing marijuana for recreational use, but at the same time, new states that have entered the industry more recently industry are doing so with much stricter regulations. These strict regulations make it very difficult for businesses to operate profitably in the marijuana industry. In fact, the volatility in rules and regulations, which plays out at the state, county, city, and town levels, can make or break a marijuana business.
While state regulations might be loosening, that isn’t always the case at the local level. However, if the trend toward less regulation continues, the opportunities for greater business competition and profitability will also increase.
Cannabis concentrates and products that are high in CBD (which has analgesic, anti-inflammatory, and anti-anxiety properties but does not cause the psychoactive effects of THC) are gaining popularity. This is just a small part in a larger trend in the growing number of products available on the marijuana market.
According to a separate presentation at the conference by Cy Scott, CEO of Headset and co-founder of Leafly, the number of marijuana products introduced each month has grown from 110 per month in July 2014 to 3,820 per month in September 2015. Today, more than 4,000 new products are introduced each month, and most purchase decisions are motivated by THC and price. However, based on the 2016 growth in concentrates and CBD trend, businesses might have opportunities to appeal to a broader consumer audience in the future with these products.
As more states legalize recreational marijuana, it will be easier for businesses to cross borders. That means product and retail brands could see national expansion. However, as Cy pointed out in his presentation, new brand introductions are outpacing retail adoption considerably. Today, 80% of sales come from 20% of products. National brand expansion could drive out smaller, competitive products.
What remains to be seen is whether national brands would leverage economies of scale and efficiencies to curtail the current trickle-down effect in the industry whereby high fees and taxes trickle down to consumers in the form of higher prices.
Another way the trickle-down effect could be curtailed is through the growth of chain dispensaries and retailers—a 2016 trend in Colorado. Intrastate expansion is certainly easier from a regulatory standpoint than interstate expansion in the marijuana industry, but it doesn’t come without challenges in the form of diverse local regulations.
However, as mentioned above, increased economies of scale and efficiencies makes the “chain” business model very attractive, and we’ve already seen some success in the marijuana industry with franchising becoming more popular and chains growing to 20-25 stores.
The marijuana industry is serious business, and as it grows, Chris Walsh explained that the “bad actors” are dropping out. At the same time, national and global corporations are eyeing the industry. Scott’s Fertilizer is already entering the industry and Google is rumored to be looking at it. With big business comes more professionalism across the industry, but it could drive out a large number of smaller players, not just the bad actors.
What was once considered an industry that was too risky to invest in, let alone take seriously, marijuana has become a hot bed for investors. In 2016, a cannabis private equity firm landed nearly $100 million, and there were dozens of seven-figure investment deals.
In fact, there were more multi-million dollar investments than ever with interest from mainstream investors such as Scotts Miracle-Gro and noted venture capital firms. Furthermore, there was more interest in companies that actually touch marijuana rather than just in pick and shovel businesses that offer products and services to businesses that touch marijuana but don’t touch it themselves.
One of the biggest challenges for marijuana businesses is the lack of banking options, but those options started to increase in 2016. Chris Walsh explained in his keynote presentation that only 51 U.S. banks and credit unions served marijuana companies in March 2014 but by March 2016, that number had increased to 301.
There is no doubt that making it easier for marijuana businesses to manage the large sums of cash they handle every day would solve a long list of industry-wide problems and open the doors for business growth.
One of the most interesting highlights of the marijuana industry story in 2016 is the legalization of marijuana in California. While it will take time for recreational marijuana to actually be available in the state, the significance of this legislation is massive. Chris projected that three to five years after retail sales start in California, revenue will be $4.5 to $5 billion. California will become the center of the marijuana industry generating more revenue than the entire industry does today.
Of course, all of this growth depends on how quickly and smoothly states get new marijuana programs up and running as well as regulatory changes in all states. If history is any indication of how long it will take, we could be waiting for many years.
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