“This is the most interesting investment concept today,” TV personality Jim Cramer said about the high-flying cannabis industry as he kicked off the Green Market Summit at New York’s World Trade Center on Sept. 14.
Industry experts shared a vision of legal cannabis as a trillion dollar-plus disruptor of the pharmaceutical, food and beverage industries as more Fortune 500 companies take aim at the sector. Panel topics focused on the economics of cannabis, reaching out to consumers and the potential for marijuana to become more mainstream.
One major theme of the one-day conference that drew about 200 people centered around the growing role of Fortune 500 companies in the space, such as Constellation Brands and Molson Coors.
“Rob Sands is a very smart guy,” Cramer said about Constellation’s CEO, who inked a $4 billion deal with Canopy Growth over the summer to produce non-alcoholic cannabis beverages in Canada. It’s the largest investment yet by any major company in cannabis, but more are expected. Constellation owns Corona, Mondavi and many other alcohol brands.
The hemp/CBD industry is estimated to grow from $5.7 billion in 2019 to $22 billion by 2022 if hemp is legalized by Congress.
The sudden interest from the alcohol industry in cannabis comes after a 17% decline in wine, beer and other alcoholic beverages in Colorado since legal cannabis sales began there in 2014. In addition, Coca-Cola is negotiating with the Ontario-based Aurora Cannabis to enter the industry with a CBD-infused drink.
While the size of the cannabis industry is typically estimated well in the billions and even tens of billions, the plant may ultimately have a much more transformational macro effect as a food additive, medicine, recreational substance, pet treat, travel industry attraction and usable fiber, among other things, panelists pointed out.
To be sure, plenty of investors will profit from the growth, but success isn’t guaranteed since many businesses may fail or be outflanked by competitors.
Citing data from Brightfield Group, Green Market Report recently published estimates for the hemp/CBD industry to grow from $5.7 billion in 2019 to $22 billion by 2022 if hemp is legalized (meaning removed from the Controlled Substances Act) as proposed in the current Farm Bill now under review by Congress.
The sudden interest from the alcohol industry in cannabis comes after a 17% decline in wine, beer and other alcoholic beverages in Colorado since legal cannabis sales began there in 2014.
If you add in countries around the world and their potential role in cannabis, the big picture gets even larger. The recreational cannabis market in Canada is considered to be about $7 billion, with the U.S. up to 10 times that amount.
Brian Athaide, CEO of the Ontario-based Green Organic Dutchman Holdings Ltd, joined the industry this year after spending 25 years at Procter & Gamble. He sees beverages outshining other categories in sheer potential. The top pharmaceutical, alcohol and tobacco companies have a combined market cap of well over $1 trillion. Meanwhile, the top five Canadian cannabis companies are currently valued at nearly $50 billion. “They’re just getting started,” he said.
MedMen Enterprises’ chief marketing officer David Dancer noted that the core consumer for cannabis products is typically 25-35 years old, but also 55-plus and women. “About 50% of cannabis customers are women going toward more wellness focused products,” he said. “Women are coming in when you get away from flower and toward concentrates and edibles. We’re seeing a huge amount of interest in that area.”
Mothers are also using cannabis in smaller dosages in recreational markets, particularly chocolates and vape pens to be more discreet. “Moms may want to swap out a glass of wine for a puff of a vape pen to get them through a tough day with a toddler,” Bethany Gomez, Brightfield’s director of research, noted. “You can’t pick up kids smelling like cannabis – not even in California or Oregon – even if it’s becoming less stigmatized.”
Medical vs. Recreational
In an afternoon session on the economic effect of medical marijuana on adult use, panelists said recreational sales will not necessarily wipe out the older business of selling cannabis to treat illnesses.
“The perception is that medical sales in states with recreational programs would disappear,” said Adam Oren, a senior expert with the Marijuana Policy Group. “The medical business is like Costco – you have to pay to join, but then the pricing is lower and the selection is very good. Recreational cannabis is like going to the 7-11. It’s more convenient and things come in smaller packages, but it’s more expensive.”
If insurance companies start reimbursing for medical cannabis, that’ll boost the business even more. Thus far, Sun Life Financial is the only insurer to cover marijuana expenses for health care plans in Canada. None exist in the U.S.
Jeannette Ward Horton, vice president of global marketing and communications for MJ Freeway, said patients frequent dispensaries less often than adult-use customers, but spend more. Medical sales may drop when adult use kicks in, but then revenues recover. “Women are spending as much as anyone,” she added.
ADAM OREN: “Recreational cannabis is like going to the 7-11. It’s more convenient and things come in smaller packages, but it’s more expensive.”
While customers are willing to pay more for legal cannabis, the black market remains an option in some areas because it’s often more affordable due to high taxes and other expenses tied to legal cannabis. The price difference is often about 30%.
On the investment front, Emily Paxhia, founding partner and director of relations at Poseidon Asset Management, said her firm has invested in more than 30 companies. Poseidon urges cannabis companies seeking investments to build up diverse boards of directors, partly because companies with a more varied makeup tend to perform better.
“There’s a real opportunity in the space to serve older women and seniors,” she commented. “There are people who stepped away from cannabis and are looking to participate again.”
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