In this edition of "Rising High," The Fly conducted an exclusive interview with Micah Tapman, chief executive officer, and Kelly Nielsen, vice president, insights and analytics, of BDSA, a Colorado-based cannabinoid market intelligence and consumer research firm. Here are some highlights:
2020 CANNABIS SALES: BDSA released a market forecast in early March reporting global cannabis sales reached about $21.3B in 2020, a rise of 48% over 2019 sales of $14.4B and Nielsen said a couple of factors contributed to the increase. “The biggest place of growth that we’ve seen globally really is in the U.S. and primarily that adult-use space,” she said. Legal cannabis sales in the U.S. exceeded $17.5B in 2020, according to BDSA, growth of 46% over 2019’s $12.1B. “As we think about where that’s coming from, it’s really from two big factors and the first is consumption continues to expand,” the VP said. “We see it even in the most mature markets. For example, if you look at a state like Colorado, Colorado penetration of those consuming cannabis is pushing 50%, which is up from about 42% a year ago.” She said the other element fueling the U.S. growth is the expansion of legal markets with markets that launched in 2019 and 2020 contributing $1.6B in spending for the year. “2020 was a really big year for the United States because you’ve got a couple of big states really coming into their own such as Michigan and Illinois,” Nielsen said, citing Illinois $1B year. “It’s those two big things, expansion of consumption and growth in mature markets in addition to new states coming online.”
2026 FORECAST: The company also forecast global cannabis sales to grow to $55.9B in 2026, a compound annual growth rate of over 17%, and U.S. sales to reach $41.3B, a CAGR of 15%. “What goes into those estimates is really taking a look globally and understanding when we think sales will come online in different markets,” the VP said. “As we look from 2019 to 2020, so much of the growth was from the U.S. and heavily from that adult-use market and we expect that to continue to expand.” BDSA expects the U.S. adult-use market to be the key driver for growth amid continued expansion and more markets coming online, she said. The company expects four new medical and five new adult-use markets to commence sales in 2021. “As we look globally, I think there’s a couple other things to consider, the first is that we do see a broader global expansion of both adult-use and medical,” Nielsen said. “In the short-term one of the big global markets where we expect to see growth is Mexico.” BDSA forecasts international sales will exceed $8.3B in 2026, a CAGR of 40%. The bulk of that new legal spending will be driven by Mexico and Germany, though the U.K. and France will contribute significantly. Mexico is expected to account for almost 32% of legal cannabis spending beyond the U.S. and Canada in 2026, according to BDSA. “And then, Canada is continuing to expand and continuing to grow,” she said. “If we look at Canada, even just the adult-use which was at about $2.2B in 2020, we expect that to continue to grow to about $6.1B by 2026.”
ADULT-USE VS. MEDICAL: As the cannabis space matures, BDSA expects the U.S. adult-use market to continue to increase substantially over the next several years. “If we look at the U.S. market specifically, if we’re looking to 2021/2022, we do expect the medical market to continue to expand a little bit up until about 2023 from where it is today,” Nielsen said. “But then we actually expect it to contract starting around 2025. Ultimately the medical market is going to give way to adult-use expansion as we look into 2025/2026.” Looking outside of the United States, growth of the adult-use markets versus medical markets may be more regional in nature, according to the VP. “In Canada for example, we have seen the same dynamic that we expect adult use to take over the medical market,” she said. “It already has and we expect that gap to continue to grow. At a broader international level, it is probably going to be more regional. When we look globally outside the U.S. and Canada, we expect the medical market to be bigger than the adult-use market over the next couple of years.”
NEW YORK: New York lawmakers approved legislation for the legalization of adult-use this week with a bill that removes cannabis from the list of controlled substances and expunges past marijuana convictions. “New York is definitely on our radar,” Nielsen said. “When we think about New York, we do consider it to be one of the top states contributing to growth of the overall industry in the United States in a couple of years. In fact, it’s second only to California.” BDSA expects products to be available in the state next year and the industry to generate as much as $750M industry in the first year, she said.
LEGALIZATION: When asked about the potential of federal legalization, Nielsen said BDSA is assuming it will take place some time in 2022 from a forecasting perspective. “We are assuming in our state-by-state forecast that the industry would still be regulated at a state level,” Nielsen said. “Just because there is federally legalization, it doesn’t mean the floodgates open automatically to things like cross-state commerce and what not. States would have the right to maintain their own regulation over the industry.” CEO Micah Tapman added there was a bullish feel to legalization after the democrats took the house, senate and presidency. “I think there was a presumption that democrats would favor cannabis legalization as compared to republicans,” he said. “That’s probably a fair statement in general. I will say the devil is in the details on any legislation passing.” The CEO said he expects states’ rights to govern and regulate their own industries to be a critical element of legalization. “That really implies that the democrats are going to be conceding some points to win republican support and obviously as republicans often campaign and lobby for states’ rights, that’s a pretty easy olive branch to offer up.”
CHALLENGES: When asked about the biggest challenges facing the industry, Tapman pointed to financing and the fragmented regulatory structure across the U.S. as two of the largest hurdles. “The whole concept of running a multi-billion dollar industry without explicit permission from the federal government in banking means that every banking transaction, every financial transaction is a bit more challenging than it should be,” he said. “The industry is unable to tap into the normal capital that would be available to an industry growing at 48%. It’s really a treasury services, financial services, financial assets challenge that slows down a lot of what we’re doing.” Tapman noted the other obstacle facing the industry is the splintered regulatory system in the U.S. “Even with the money if you need to build different operating organizations in every state, it’s much more expensive than you would expect thinking about a normal U.S. company,” he said. “It’s much more akin to doing business in Europe or something before the EU. You had to have all these different subsidiaries in different countries and that is really problematic.” Federal legalization could help with that issue, the CEO said, but if states still have regulatory differences, the space may end up more like the insurance industry. “You can run a regional firm but it’s just too much overhead to try to run a national firm,” Tapman said. “We’re seeing that premise tested as you get multi-state operators like Curaleaf (CURLF), Cresco Labs (CRLBF), Verano (VRNOF), etc. trying to expand and maintain efficiencies while they also comply with state-by-state regulations.”
OPPORTUNITIES: As the cannabis space develops and opportunities increase, the CEO said there has been debate in the investor community over the potential of vertically-integrated multi-state operators versus companies focused on specific areas. “You can look at a brand only, like Wyld, out of Oregon and then shifting into California, expanding into Nevada and Colorado and doing very well on the brand front versus let’s say a Curaleaf, which does both brands and retail operation,” he said. “The jury is out on which companies are really the best and the answer to that is probably much more nuanced than frankly people want to hear.” The CEO said performance depends largely on the execution of the company itself and the same question is present in many traditional industries. “Is it better to be a retailer only or to be more vertically integrated?” he asked. “You see this playing out in every other industry, where retailers think they can improve their margin by doing brands but at the same time a lot of major companies in CPG are brand only and they don’t try to do retail.” When looking at opportunities in the industry, Nielsen added that she expects the Northeast seaboard to be very interesting in the next couple of weeks. “As we look at the top ten markets for growth and where we expect growth to come from, many of those states are on the Northeast seaboard, so New York, New Jersey, Maryland and Massachusetts,” she said.
CANNABIS STOCKS: Other publicly-traded companies in the space include Acreage (ACRHF), Akerna (KERN), Aleafia (ALEAF), Aphria (APHA), Aurora Cannabis (ACB), Auxly Cannabis (CBWTF), CannTrust (CTST), Canopy Growth (CGC), Canopy Rivers (CNPOF), Clever Leaves (CLVR), CordovaCann (LVRLF), Cresco Labs (CRLBF), Cronos Group (CRON), CV Sciences (CVSI), CURE Pharmaceutical (CURR), Delta 9 (VRNDF), Emerald Health (EMHTF), Fire & Flower (FFLWF), FluroTech (FLURF), General Cannabis (CANN), Greenlane (GNLN), Green Thumb Industries (GTBIF), GrowGeneration (GRWG), Harborside (HBORF), Hemp (HEMP), HempFusion (CBDHF), HEXO (HEXO), IM Cannabis (IMCC), India Globalization Capital (IGC), Indiva (NDVAF), Inner Spirit (INSHF), Innovative Industrial Properties (IIPR), Khiron Life Sciences (KHRNF), Liberty Health Sciences (LHSIF), Lowell Farms (LOWLF), MediPharm Labs (MEDIF), MedMen Enterprises (MMNFF), MJardin Group (MJARF), Neptune Wellness (NEPT), Omnicanna (ENDO), Organigram (OGI), Planet 13 (PLNHF), Skye Biosciences (SKYE), Sproutly (SRUTF), Stem Holdings (STMH), Sunniva (SNNVF), Supreme Cannabis (SPRWF), Valens (VLNCF), TerrAscend (TRSSF), Tetra Bio-Pharma (TBPMF), Tilray (TLRY), Trulieve (TCNNF), Village Farms (VFF), Vireo Health (VREOF), WeedMD (WDDMF), Wildflower Brands (WLDFF), YSS Corp. (YSSCF), Zynerba (ZYNE) and 4Front Ventures (FFNTF).
Curaleaf
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Cresco Labs
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Verano Holdings
+ (+0.00%)
ZYNE
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Trulieve Cannabis
+ (+0.00%)
Tilray
+0.145 (+0.64%)
IGC Pharma
-0.01 (-0.56%)
Trees Corporation
+ (+0.00%)
Cronos Group
+0.17 (+1.80%)
CannTrust
+ (+0.00%)
CV Sciences
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Aurora Cannabis
+0.1 (+1.08%)
Canopy Growth
+0.82 (+2.56%)
APHA
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