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Cannabis sales have increased substantially in the last few years, but so has the competition with more growers, retailers and other entrepreneurs vying for a stake in the “green rush.” At the same time, an oversupply of marijuana and the cost of operating in this highly regulated industry are taking their toll.
Here, industry executives predict top trends for 2020.
Cannabis Legalization Is Going Global
Legalization is growing outside of the United States, and countries that are first to the global marketplace can create sustainable advantages for themselves in their customer base and their funding. Kyle Detwiler, chief executive of Clever Leaves, an international operator with brands, extraction facilities, cultivation operations, and other investments in six countries, says that countries like Colombia and Portugal that have been among the first to legalize cannabis “are poised to continue establishing their global dominance in short order.”
The countries’ first-mover status will also be a magnet for financial interest he said. “There is little doubt that the expanding European cannabis market will make it an attractive investment opportunity,” Detwiler said.
Hemp, the source for CBD in many non-psychoactive products, will expand internationally as well, driven by the CBD’s demand. The CBD market will grow to $2.1 billion in consumer sales by 2020 according to the Hemp Business Journal, with $450 million of those sales coming from hemp-based sources. Puerto Rico’s Department of Agriculture has already reported there will be at least 10,000 acres of hemp cultivated for commercial purposes in 2020
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The CBD Product Market Will Mature
CBD is being added to products across the retail spectrum from food to make-up, but with little legal oversight or requirements, the products can easily be mislabeled or ineffective. Clever Leaves chief executive Detwiler says in 2020 CBD standards will begin to emerge based on customer demand. “Consumers are getting more savvy on the benefits of CBD and they will begin to insist on knowing exactly what they are paying for and what they are getting when they purchase ‘CBD’,” Detwiller said.
Consumers will “begin to insist” on CBD standards agrees Bill Thurman, chief executive of Redbird Bioscience a medical cannabis operator and producer of pharmaceutical-grade cannabis for patients in Oklahoma.
Thurman said companies will help the market succeed as a whole if they adhere to high quality standards and agreed-upon guidelines in testing and manufacturing. That kind of rigor is needed to significantly increase the size of the market and only by conducting “science-driven randomized clinical studies, can we shed reliance on anecdotal data to support medical claims,” he said.
Barbara Goodstein of B GREAT which produces full-spectrum upscale CBD items expects CBD to be added to even more products like deodorant, hand soaps, throat sprays and nasal sprays. The popularity of the category also creates additional business risks according to Goodstein. “The hype around this space will end up creating applications and uses that make no sense, which will unfortunately diminish the real value of the product,” she said.
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Real Medical Testing Will Increase
Until cannabis is taken of the Schedule One substance list, medical research will be challenging to undertake. Still, executives in the industry are seeing some movement in the area. Israel still leads the world in global cannabis research, and Israeli scientists like chemist Raphael Mechoulam, a researcher at Hebrew University and pioneer in cannabis research, are being hired or given research grants by American organizations.
Dr. William Levine, founder and chief scientific officer of CannRx a subsidiary of Izun Pharmaceuticals that develops proprietary medical and recreational products expects companies to use better data, and well-designed clinical trials. His own company is focused on better “bio-availability” which focuses on lower dose products that can offer similar benefits to higher dose products, but with fewer side effects.
Older Customers Will Expand Their Cannabis Purchases Beyond Medical Use
CannRx’s Levine predicts there will be “increased recreational expansion into older populations,” as product quality and more controlled dosing options come to market.
Legislative Action Will Remain Robust
According to Marijuana Moment, as of January 16, there were 975 cannabis-related bills moving through state legislatures and Congress for 2020 sessions.
“We expect to see a lot more regulatory activity in 2020 on both the state and federal levels,” said Redbird Bioscience’s Thurman.
Each state makes its own rules. For example, regarding medical marijuana use, some states have a list of specific ailments that can warrant a recommendation of the substance (states include Florida and New Jersey). In other states the decision to use medical marijuana is entirely between patient and doctor (states include Oklahoma and California.)
States will have more models to look to as they develop their laws and will likely start adopting each others’ best practices. Law makers will start learning more from each other’s experiences and “harmonize” their regulations with each other said Levine. He also believes the federal government could take the first step to legalize medical marijuana.
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Matt Anderson, chief executive of Vanguard Scientific, a company that provides service resources for cannabis and hemp botanical extraction, says just the ongoing discussion of legalization and decriminalization will continue to drive market growth.
Multi-state Operators Will Face A Shake-out
Running a cannabis business is expensive, and running a multi-state cannabis business when each state has its own rules to abide by make it hard to achieve economies of scale. Lack of access to traditional sources of capital like debt and equity add to the challenge. This year will see a few multi-state operators (MSOs) fold and sell off their component companies according to Lewis Goldberg, managing partner of KCSA Strategic Communications. Most of the MSOs have been run by financial operators Goldberg said, not operational experts, but “with the need to deliver results, that will change.”
Back To Basics
Businesses are focusing on the fundamentals to stay solvent or to make themselves attractive acquisition targets. Matt Hawkins, chief executive of Entourage Effect Capital a cannabis-only private-equity firm that has deployed more than $50 million into 32 companies says companies will “make every effort to be more efficient.” They will still aggressively seek out new customer bases and explore innovation, he said, “but preserving margins will matter.”
Jeff Fallows, president of The Valens Company, says he also expects to see a marked improvement in the underlying fundamentals of the companies themselves. This will be a big year for the companies that execute well on their business plans, he said. Those companies will “emerge as leaders and those will be the ones to watch in 2020 and beyond. “