This new year bodes well for the cannabis industry. There’s excitement as we welcome new states into the cannabis fold and fervent hope that we’ll see movement toward making cannabis fully legal at the federal level. Momentum from several major developments in 2018, including the inclusion of industrial hemp in the new farm bill and Canada’s nationwide legalization, will certainly continue to fuel innovation, policy and entrepreneurship.
Here are some trends and developments we’re keeping a close eye on as 2019 roars to life:
Legalization: Now that the House of Representatives will be controlled by Democrats, some of whom have made legalization part of their campaign promises, we can expect a lot of talk on various national bills. There will be dozens of ideas tossed around, a lot of enthusiasm and a general expectation that the U.S. is moving toward an end of prohibition at the federal level. In fact, Rep. Earl Blumenauer (D-OR) has even laid out a step-by-step process for making cannabis legal in 2019.
Department of Justice: This is an uncertainty for 2019. Fired U.S. Attorney General Jeff Sessions was a foe we were familiar with. While his rhetoric may have prevented a few companies and financial institutions from entering the space, he had no detrimental impact on the industry. Ultimately, there was a sense that despite the bluster, he was taking a hands-off approach to cannabis. With Sessions gone, there’s an opportunity for a new attorney general to block positive change.
Industry leaders: This is the year when we’re going to start to see a bifurcation between companies that are solid and those that aren’t. Up until now, cannabis has been a “rising tide lifts all the boats” kind of industry. But that won’t be true anymore. We’ll see people who are successfully executing their business plans get a major lift this year as consumer spending is expected to jump 40%. But we’ll also start to see inept companies fail. A lot of people blindly got into cannabis because it was hot or the next big thing, and they’re going to pay a penalty for not knowing the industry. 2019 is going to be a reality check, which is a good thing for those companies that have solid, professional business plans in place, because we can expect retail investors to start to take a back seat to big money.
Capital concentration: Stocks were volatile for a few months at the end of 2018 because investors weren’t sure how the landscape would change after Canada’s switch to legal cannabis. But as institutional investors start coming in, they’ll take a hard look at everyone’s numbers and reward companies that are solidly performing and have the traditional hallmarks of a successful startup. That means capital is going to start migrating to the better players, which is going to further separate them from the pack. While there will be some fallout, in general, it’s a good thing for the market. An industry built on hype and expectation can’t survive. This is the year we’re going to see that performance and numbers matter.
Terpenes: Terpenes are the compounds that give cannabis its flavor. They also enhance the sensory experience. It’s called the entourage effect, and it refers to the way terpenes and THC work together to produce a stronger influence than either can by itself. Scientists are mining terpenes to discover the hidden characteristics of the ones we know about, and uncover any we haven’t yet identified. As we learn more about which ones produce what specific effects, we’ll start to see new and better formulations for both medicinal and recreational uses.
Products: More than 30% of all cannabis sales in California in 2018 were vapes. We should expect other states to follow California’s lead with surging vape sales in 2019. Low-dose products, designed to attract new consumers to the cannabis space, will start to make a showing this year. That includes ready-to-consume edibles, beverages and vapes. Distillate oils, which are virtually odorless and tasteless, offer versatility and potency. Look for them to contribute to an explosion of new cannabis-infused products. At the same time, we’ll see flower sales start to decline as a percentage of total sales, as vapes and infused products eat away at the category. The beverage category will also make a lot of noise in 2019. It’s going to be a hot topic and will get some additional traction. However, despite the hype, it probably won’t get a lot of actual market share until 2020 or 2021. It will take time to fine-tune beverages, but they are expected to be a $600 million business by 2022.
What we won’t see yet are any national brands. As long as interstate commerce is denied to cannabis, it will be difficult to create one. It makes sense in some ways. When there are a limited number of licenses, why would New Jersey give one to a California-based company? Plus, without the ability to standardize growing and processing, there’s no brand consistency — meaning there’s no way to make a product in Ohio that tastes exactly the same as one made in Florida. It’s left to individual regions to develop their own local brands.
Read more from the source: Forbes.com
Photographer: Zach Gibson/Bloomberg