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A Snapshot Of Colorado's Cannabis Market For Investors, Entrepreneurs

April 1, 2021 3:14 pm
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A Snapshot Of Colorado's Cannabis Market For Investors, Entrepreneurs

Colorado was first-to-market in the cannabis space, and the stability in the market could mean fewer opportunities for significant returns. 

But there's no denying Colorado cannabis is booming.

The state saw a 26% increase in 2020 sales for a total of $2.2 billion, according to BDSA data.

BDSA forecasts Colorado sales will reach $2.7 billion by 2026.

Potential investors and entrepreneurs could find immense payoffs and stability in Colorado if they can gain a foothold in the marketplace.

Colorado's Cannabis Market 

Leaders in Colorado's cannabis market told Benzinga the state offers investors access to a mature market, established brands and strong performance.

The Centennial State legalized recreational marijuana in 2012. 

"Colorado is the OG market in terms of adult use," said Nancy Whiteman, CEO of Wana Brands, which operates in 12 states.

The state's relatively open license structure is a plus, she said, noting that caps only exist in certain municipalities.

As the first to legalize, Whiteman said Colorado has benefited from seeing its market fluctuate several times already.

"Colorado has already gone through a whole bunch of upcycles that earlier stage markets are just experiencing now." 

Jessica Billingsley, Akerna Corp (NASDAQ:KERN)'s CEO, also touched on the benefits that come from a mature market. 

"We have good benchmarks for identifying well-performing cannabis businesses versus distressed companies," said Billingsley, adding that several brands have already built loyalty with consumers.

Rich Batenburg, chairman of the board for Clear Cannabis Inc, seems to agree: for him, Colorado's mature market is a significant selling point.

"We were a good first mover," said Batenburg, adding he feels the state is a great market for new investors and entrepreneurs.

Colorado's Major Players, Smaller Booms, Unpredictable Weather

Established markets typically bring lesser returns than more nascent ones.

Massive growth numbers aren't likely to occur in a market with established land and distribution like Colorado, Batenburg said. 

"We're already in consolidation mode here in Colorado," he said, adding that new markets like New Jersey and Missouri offer more excitement right now.

Whiteman delved into the subject as well, noting that Colorado has already seen more prominent brands like Native Roots, LivWell and several others obtain more significant footholds in the marketplace through M&A deals that she considered reasonably priced.

While MSOs largely avoid unlimited markets, she expects MSOs to continue coming into the space, as the allure of "Made in Colorado" branding remains in the cannabis space.

Case in point: in September 2020, Columbia Care Inc (OTCQX:CCHWF) entered the marketplace through its acquisition of The Green Solution.

Investors have to ask which companies can gain "enough critical mass to move the needle in any way that's meaningful in Colorado," Whiteman said. 

Beyond the looming presence of big brands, Akerna's Billingsley said Colorado wholesale prices can be volatile.

The costs hinge on the amount of material coming to the market from outdoor grows versus indoor and greenhouse operations, she said. 

"And the weather is always an unpredictable factor." 

Deciding If Colorado Is The Market For You

For Billingsley, investing and operating in cannabis come with their risks and rewards.

Colorado and large-cap stocks represent ventures that should see continued incremental growth, she said. 

"Or, you can take the risk of betting on nascent cannabis markets and emerging growth stocks with a less certain future but potentially higher rewards."