2016 was one of the best years for legal marijuana in recent history. Marijuana legalization initiatives won very decisively in eight out of nine states on Election Day, as a record number of adults in the U.S. supported the legal use of marijuana. In addition, the industry hit several milestones, including cannabis sales of more than $1 billion in the state of Colorado, investments of over $1 billion and the IPO of the first medical marijuana properties-focused REIT, Innovative Industrial Properties Inc IIPR, on the New York Stock Exchange.
Although some people are worried about how a Republican-controlled White House and Congress, along with the appointment of Jeff Sessions as attorney general, could impact the cannabis industry, experts seem to agree that there will be no big changes in terms of policy and states’ independence.
However, there’s more to the cannabis industry than policy. So, Benzinga decided to reach out to the top experts in the space, and asked them to share their predictions for 2017. Check out Part 1 of this article following this link and Part 2, here.
12. Big Marijuana And Boutique Growers Both Make It
Brendan Hill, famed drummer of Blues Traveler, a Grammy-winning U.S. band, and co-owner of Bainbridge Island’s Paper & Leaf, one of Washington State’s top grossing legal cannabis retail shops, talked about growers: “With big name brands including Marley Natural, Willie’s Reserve, and Dixie Elixirs leaving a national footprint on the cannabis space this year, in 2017, expect more brands to achieve licenses across state lines. Simultaneously, the more senior legalized markets like Washington and Colorado will continue to nurture boutique brands, while specific provisions in laws such as California’s Prop 64 offering protections to independent growers will encourage small-scale entrepreneurs to enter the market. As with the craft beer and wine industries, we’ll be seeing a demand for cannabis products that are locally grown and packaged.”
13. Competition And Quality Increase
Luba Kay, chief financial officer at CannaSOS Corp, a social media site for “everything in the marijuana industry,” supplemented Hill’s thoughts going into competition and quality. “So far, 33 states have legalized marijuana in some form. Those states that have legalized marijuana for recreational and medical purposes, such as Colorado, California and Washington have seen a drastic increase in the amount of entrepreneurs that are opening up marijuana dispensaries and other marijuana-related businesses.”
“Because of this, the amount of competition between marijuana dispensaries in these states [...] will drastically increase. An increase in marijuana dispensaries will give cannabis consumers a wider variety of choices – where to buy from, who to buy from,” she voiced. “This will lead to: (1) dispensaries increasing the amount of different strains in their inventories, (2) an increase in businesses who sell products such as pipes and grinders, and (3) a drastic increase in the quality of marijuana related products. In 2017, I see a huge increase in competition in ‘marijuana developing states,’ as well as the overall quality of marijuana-related products.”
In a similar line, Troy Dayton, CEO of the ArcView Group and famed legalization advocate, noted: “I think that we are going to see the price of wholesale cannabis drop, and that is going to be driven by a lot of agricultural technology innovations, and then also by applications and economies of scale within the cannabis industry. In turn, that is going to cause there to be a lot more interest in derivative products, so things like different edibles and infused products and topicals — things we've never even heard of — I think there's going to be a lot of new products and a lot of new brands looking to capture different consumers' attention.”
14. Ancillary Businesses Are Poised To Boom
Blues Traveler’s Brendan Hill also commented on ancillary businesses: “While the popping-up of neighborhood dispensaries may be the must obvious effect of cannabis legalization, business behind the scenes has been booming too. Like every industry heading into 2017, cannabis is primed for disruption. From software and data analytics platforms to producer technology and social media platforms, tech businesses in the cannabis industry are readying themselves to reap massive benefits as more states turn green.”
“Look for these companies to expand as large markets such as California, Nevada, and Florida open their doors to cannabis,” he recommended. “Businesses operating in early adopter states like Washington and Colorado who have already embraced digital innovations will look to bring new solutions into their shops, while those tech businesses based in the area will look to expand into fresh markets as the demand widens.”
15. Opportunity Remains In The Private Sector
“From an investment standpoint, I think that most of the opportunity is going to remain in the private companies, and I think that we are going to start seeing a lot larger A and B rounds from a lot of companies,” ArcView’s Dayton voiced. “So, rather than companies raising $1 [million] or $2 million, we are going to start seeing people raising $5 [million] to $30 million.”
16. Many Marijuana Businesses Leave Facebook
CannaSOS CFO Luba Kayalso foretold a decrease in the amount of cannabis businesses using Facebook Inc FB. “In the second quarter of 2016, Facebook made a change to their algorithm, which led to a further prioritization of your friends and family,” she explained. “This means that in the News feed, you would first see your posts, then your family posts, then your close friends, friends, and so on until you get to the group pages and business pages. Essentially, business pages will have to begin paying — even more than they are now — up in order to get their websites or business pages noticed. This is good for the user, as you and your friends will receive more exposure, but this is a serious problem for many businesses, especially marijuana businesses as: (1) a drastic decrease in traffic, (2) marijuana businesses are not allowed to advertise on Facebook, (3) Marijuana businesses have to look for alternate sources.”
“For example: Tommy Chong’s Facebook page has 7.6 million page likes. So far this week, he has made 101 posts, but only received 1.5 million engagements. Only 20 percent of his viewers saw and engaged with his posts. Another example is Cannabis Now Magazine, who has 4.1 million likes. They have posted 29 times and only received 196,900 engagements. That’s 4.8 percent of their views who saw and engaged with their posts! So, in all, I see more marijuana businesses leaving Facebook — as Facebook is making it difficult for marijuana businesses to market their brands.”
17. Canada Fully Legalizes Cannabis
Lastly, Kay anticipates “full legalization of cannabis in Canada.” According to the expert, that “would create huge growth in the already booming cannabis industry. When the Canadian government legalizes marijuana for both recreational and medicinal purposes, they will most likely make it easier for entrepreneurs to get a license to grow marijuana. Therefore, [we’ll see] more marijuana businesses in Canada and more money going into the Canadian economy. This will increase the size of the Cannabis industry in North America, and will further encourage more entrepreneurs to open marijuana-related businesses.”
“I also see Toronto becoming the official marijuana capital of Canada,” she ended.
“I think Canada will go legal, which will help to validate a lot of the investment that's been happening there in 2016. And then, I also think that we are going to see movement in other places around the world, moving in this direction as well,” ArcView’s Dayton supplemented.
For his part, 420 Investor’s Alan Brochstein said, “The biggest story beyond federal cannabis policy this year is likely to be the attention on Canada's move towards legalization. Parliament will receive the proposed legislation in the Spring (maybe on 4/20?), and it's likely that the finalized legislation along with a timeline for implementation will take place by the end of the year. Because Canada is a G-7 nation, the implications are profound regarding the United Nations. Canada's move, along with the likely German national medical cannabis program being created — investors are likely to appreciate the truly global nature of cannabis legalization.”
The Size Of The Market
According to Matthew A. Karnes, founder and managing partner at GreenWave Advisors, the firm is expecting legal cannabis sales of $7.5 billion in 2017, up from $6.5 billion in 2016. By 2021, sales are projected at $30 billion; this implies a five-year compound annual growth rate of 35 percent.
The ArcView Group arrived to slightly different figures, however. “We just put out a new market number showing that in 2016 in North America this was a $6.7 billion market. And, we predict that by the end of 2017, the North American market will be a little over $8 billion. So, it will grow at 20 percent in 2017, after growing about 30 percent in 2016,” Dayton told Benzinga.
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