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By: Charles Freeman
I’ve discussed how the social acceptance of consuming marijuana has changed dramatically since the 1990s. Acceptance has grown across demographic groups and political affiliation. I think how marijuana is being consumed these days is part of the reason for those changes.
In the past, cannabis consumption was largely associated with smoking. Occasionally, someone might say they had a “pot brownie” at a party. But typically, variations of smoking were used in consuming the product, i.e., a joint, a pipe, etc. This historical precedent is quickly being replaced by new “methods of delivery.”
There are three major segments in the legal marijuana industry – flower, edibles, and the newcomer – concentrates. Flower represents purchases of dry leaf cannabis to put in a pipe or roll in a joint, just like the old days. Edibles have expanded dramatically beyond brownies. Now it is common to go to a dispensary and purchase gummies, chocolate bars, or even chips. Concentrates are the newest form of cannabis products, and they are quickly overtaking their counterparts. Concentrates are basically cannabis-derived extracts of the plant that contain various amounts of THC and/or CBD. Other cannabinoids can be isolated by the extraction process as well (which I expect to see in the future). The oil extract is then often consumed directly or with a vaporizer.
The increasing popularity of consuming concentrates relates to versatility. For medical patients, concentrates can be much more potent than flower or edibles, so relief from ailments can come much more quickly and efficiently. Also, on the medical front, concentrates allow for the isolation of specific cannabinoids in the extract. Therefore, the patient can consume a specific concentrate based on the type of disease or disorder they have. On the recreational side, vaping the concentrate oil seems to hold more appeal than smoking the flower for many consumers. Smoking (in general) has been on the decline for decades due to acknowledged health risks. I’m not going to suggest vaping is or is not more harmful than smoking. Remember, I am analyzing this industry as I would analyze any other industry only for investment purposes. That said, the numbers in the sales data seem to speak to the preference. After a state adopts cannabis legalization in some form, over time, flower sales begin to decline and concentrate sales increase.
“When adult-use sales began in Colorado, on January 1, 2014, flower immediately dominated. By the end of that year’s first quarter, flower commanded 67 percent of all cannabis sales in the state. However, four years later in 2018 sales of flower during the first quarter sunk to 44%. During this same period, the share of concentrates in the cannabis market expanded from 15% to 31%.” – BDS Analytics
Similar trends of concentrates gaining share from flower sales are also occurring in Oregon and California. I think this has to do with consumer education in the legal cannabis market. Think about it: When a state first legalizes cannabis sales, it is a novelty. Interested citizens are just excited they can buy the product legally for the first time. Brands do not really matter at this point. It is more about the ability to buy something legal which was illegal before. Flower would be the natural first purchase as it is the most familiar to the mass market given history. However, dispensaries and “budtenders” are highlighting new alternative products, and the response seems to be positive based on the sales data.
So, are concentrates the future? I would actually say – No.
Industry estimates at this point suggest edibles will be the leading segment in the long run. More specifically, it is thought that the most common method of consumption will be ingesting cannabis and hemp via liquid rather than food.
I recently downloaded a cannabis company presentation, and it highlighted products that are being developed for the future. Four of the five target products were beverages of some kind – coolers, beer, sports drinks. Can you imagine, five years from now, seeing CBD sports drinks being consumed at your local tennis match?
The FDA plays a large role in the development of such products given their regulation of dietary supplements. As I have mentioned, I see clarifying guidelines being laid out by the end of 2019 or 2020 at the latest for cannabis and hemp-based products given the growing momentum of the legal cannabis industry.
There is an ongoing debate about cannabis being a “substitute” for alcohol. Some studies suggest alcohol consumption has declined in states where cannabis is legal, while other studies suggest this is not the case. New methods of cannabis delivery could give us definitive data for this question. For example, if “cannabis beer with no alcohol” does, in fact, become available to the mass market at some point, it will be a lot easier to make a direct comparison.
I also see future consumption of medical cannabis in another new form – gel caps. Several companies are already producing gel caps for the medical market. Let’s speculate a bit. If medical marijuana was federally legal and doctors were able to prescribe it more, the most probable delivery method would be in pill form, given the current industry standard. Most people would have a hard time imagining their grandmother smoking a joint to treat her chronic pain. But what if she could just take another pill? She just adds it into her other daily medications. My guess is she wouldn’t think anything about it as long as it eases the pain, especially if the doctor prescribed it.
So, let’s put our investment hats on. Many markets are governed by supply vs. demand. The “methods of delivery” for the legal cannabis industry are opening doors and creating more demand in the medical and recreational markets. When you realize cannabis consumption is moving beyond the traditional smoking method, you can imagine how broad the market could be as the public becomes more educated about the new forms of delivery. Certainly, delivery methods are only one factor influencing demand. However, I feel these new consumer-friendly innovations are one of the contributing factors in the growing social acceptance of cannabis use. Further, with the ability to “infuse” cannabis in recreational beverages and create gel caps for medical use, the potential global market could be much higher than previous estimates.