Arcview Market Research Archives - Green Market Report

Debra BorchardtDebra BorchardtJune 5, 2018
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4min42820

A new report from Arcview Market Research and BDS Analytics says that the medical marijuana market will drop to only 41% in 2018 as the California, Nevada and Canada adult-use markets explode. Medical marijuana accounted for 71% of the legal market in 2017, making the pace of the decline dramatic. The State of Legal Marijuana Markets 6th Edition also predicts that the medical component of worldwide legal sales will plunge to just 35% by 2022 due to the growth of recreational sales in those three markets, along with new states like Maine and Massachusetts.

Consumer spending in cannabis markets is expected to triple to $32 billion by 2022 for a 27.5 compound annual growth rate (CAGR). The report notes that U.S. sales alone will grow to $23.4 billion by 2022. It seems Americans are the most excited about adult use marijuana as the paper says that it is largely a U.S. phenomenon.  The rest of the world appears to be content to stick with just medical marijuana.

Uruguay and Switzerland allow for sales of recreational cannabis, but the Swiss limit it to pre-rolls with up to 1% THC. Germany recently opened to medical sales in 2017, which was a big leap for Europe but won’t move the needle in global sales.

Another area that the report highlights as changing is the decline in flower’s total sales in relation to the market. The report says that vape sales have grown 86% from 2016 to 2017 followed by live resin which has grown 80%. Oils have grown by 40% “California’s extract market, where the vape subsector comprises 71% of all concentrate sales makes high-quality vapes a hot opportunity for companies looking to enter the market.”

Investing in cannabis has changed too. “Despite a pullback since 2018 began, the top four Canadian LP’s were valued at a total of C$10 billion at the end of April, about twice our 2022 forecast for consumer spending in the entire Canadian market.” The report also pointed out the softening stance by the stock exchanges in the U.S. Initially the exchanges wouldn’t allow any plant touching companies to list, but now Cronos Group (CRON) from Canada is on the NASDAQ and Canopy Growth (CGC) is on the New York Stock Exchange.

The cannabis friendly Canadian Securities Exchange lists about $5 billion in cannabis-related companies out of a total of C$9 billion in market cap for 354 companies. 23 of those companies are U.S. based. The report also noted that while some investors continue to avoid plant touching companies to stick with ancillary investments, Constellation Brands (STZ) jumped in with its 10% stake in Canopy Growth.

Looking Ahead

The report says that despite movements from other countries like Germany, North America will continue to lead the way in legal cannabis spending. South America is also building its programs as Uruguay takes big steps forward as the first federally legal adult-use market. While many believe legalization will only mean an upside to the industry, the report cautions that strict regulations keep the black market intact. It also predicts that prices will fall and that the availability in attractive retail environments will expand.


Debra BorchardtDebra BorchardtMarch 21, 2018
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6min20150

A new report suggests that the California cannabis market growth may be slowed due to heavy taxes and restrictive regulations. “California: The Golden Opportunity” written by Arcview Market Research in partnership with BDS Analytics writes that even the state’s revenue gains could be affected by the onerous tax and regulatory burdens that will drive consumers to the black market – exactly the opposite of what authorities wanted.

The report stated that the taxes and regulations amount to a 77% handicap versus the prices in the illicit market. California already had high sales taxes and now that is compounded by new cultivation and excise taxes. In addition to that, cannabis businesses are subject to the costs of navigating 40+ different types of state licenses. All of these costs ultimately trickle down to the consumer.

“While California cannabis companies are thrilled with the traffic increase they’ve seen since January 1 they can’t help but worry that regulations and taxes are going to handicap the legal market in the long term,” said Troy Dayton, CEO of the Arcview Group. “It’s clear that every additional penny of a price increase on legal cannabis products only serves to boost the attractiveness of purchasing from the illicit market which has flourished in the state for decades.”

To get an idea of how pervasive the black market is in California, the State Department of Food and Agriculture reported that cannabis cultivators (both legal & illegal) grew 13.5 million pounds of flower in 2016. However, residents only consumed 2.5 million and the rest was diverted to the black market. The bad players have little incentive to abide by the law because as part of the legalization process, punishment for breaking drugs laws have been lightened.

The report said that long-time illicit market customers were shocked when they saw the prices in legal dispensaries. Around 50% of California consumers surveyed in BDS Analytics’ “Public Attitudes and Actions Toward Legal Cannabis” reported buying cannabis from a friend, family member, or acquaintance. This market is big and very much ingrained in the state. Meaning there will be stiff competition between the legal and illegal businesses.

That competition isn’t helped when the legal operators are forking over higher taxes than in Colorado and Oregon with local municipalities adding their own taxes on top. A hypothetical $1,400 pound of cannabis effectively ends up costing $4,054 at retail and puts cannabis businesses at a serious disadvantage to the illicit players who have little overhead costs.

Ultimately the state could be cutting off its nose to spite its face with the extra regulatory and tax burdens. States have mostly legalized recreational marijuana so that they can reap the benefits of huge tax receipts. Cannabis sales in California are expected to hit $3 billion in 2018 larger than the states of Colorado, Oregon and Washington combined. The tax revenue is expected to exceed $649 million in 2018, so this is a significant source of income that the state will want to protect and grow.

While the numbers seem generous, they could be even bigger. The report notes that its forecast puts sales at $7.7 billion by 2021. “That sounds like a lot of growth, and it is, but the forecast is conservative compared to the post-adult-use legalization growth seen in other states. During the first three years (from 2017 through 2020), California’s market will increase at a compound annual growth rate (CAGR) of just under 29%—versus the 84% seen in Washington, 57% in Oregon, and 56% in Colorado during the first three years of adult-use in those states.” Still, the authors believe the politicians will be willing to make adjustments to ensure the success of the program.

“Rarely does a 20-year-old market undergo as radical a transformation in as short a time as California’s cannabis market did on January 1st of this year,” said Tom Adams, Editor-in-Chief at Arcview Market Research and Principal Analyst at BDS Analytics. “Suddenly, 29 million adults had access to the cornucopia of the modern cannabis store but were also suffering sticker shock from the state-imposed costs of going legal.”

On a positive note, the authors of the report believe that medical patients will be excited to see a new range of products available to them in the legal market. They also think that long-time black market consumers will find that the quality of the legal products is better and the options in the legal dispensaries more plentiful. Plus, there will be many consumers who did not want to engage in the illegal market, but now will be comfortable entering a legal dispensary.

In addition to the analysis of the illegal market, the report does a deep dive into all of the complicated regulations affecting the businesses, plus an exhaustive review of the various regions and counties.  It delves into the conflict of the inner state areas not wanting to be a part of the cannabis industry versus the coastal areas that seem to be all in.

 



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The Green Market Report focuses on the financial news of the rapidly growing cannabis industry. Our target approach filters out the daily noise and does a deep dive into the financial, business and economic side of the cannabis industry. Our team is cultivating the industry’s critical news into one source and providing open source insights and data analysis


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