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Derivatives Expected to Dominate the Market

The Canadian Imperial Bank of Commerce (CIBC) released a report in January that highlighted the eye-opening growth and expectations of the domestic and international cannabis industry. The study featured some key trends that are undoubtedly of interest to those with skin in the game, as well as those looking to get involved in the industry.

One of the most expected predictions by cannabis industry insiders that came out of this report is that derivative products will ultimately be a dominant trend for Canadians.

Consumers in the Great White North are currently only permitted to purchase flower, pre-rolls and cannabis oil. The report highlights a significant shift in advanced cannabis markets such as Colorado, where there was a clear movement away from flower towards concentrates and related products that include vape pens and extracts like shatter and wax. Strangely, edibles in these regions have seemingly remained stagnant the past few years.

In 2014, flower sales in Colorado were between 60-70%. Compare that to 2017, when flower sales decreased to between 50-60%. For concentrates, 2014 sales in Colorado were hovering at slightly above 10% and then in 2017 that number greatly increased to between 20-30%.

The report also features a diagram of the nationwide statistics for cannabis product sales in the US, which shows that flower makes up 49% of the total market. For derivatives, vape cartridges account for 21% of total sales, extracts are at 8% as are pre-rolled joints and edibles, and tinctures as well as disposable vape pens are at 3% and 2% respectively.

A high importance was placed on product diversity in the marketplace. “The concept of product mix is incredibly important in cannabis, as the margin profiles can vary differently for individual products,” the report states.

“Years ago, discussion in this industry was dominated by price and cost per gram. We expect this will transition into price and cost per serving as tastes and preferences shift towards alternative products. Part of the reason that producers and retailers wish to sell products beyond just flower is not only much greater ability to develop brands, but also better use of cannabis production and extraction.”

The Importance of Branding

Another interesting take-away from the report and examination of more mature cannabis markets in the US is that branding works. This piece of news is cold comfort at the moment to licensed producers in Canada that are under incredibly strict regimes regarding packaging and advertising. However, the data highlights what could be possible in the future if the government allows a loosening of restrictions, similar to alcohol.

The report states BDS Analytics has revealed that the top 10 brands in both Colorado and Oregon command higher prices on average and significantly more market share than competitors. It is also noteworthy to point out that popularity of these brands can “turn on a whim.” The proof of this is while the top 10 brands in Colorado cover nearly half of the total market, four different brands made their way onto that list in 2018.

Other points of interest in the detailed study show that international cannabis legalization is still in its infancy, but de-stigmatization and normalization is a global movement. Further, it outlines that on the medical side, humans have been using cannabis for centuries and CIBC believes there will be numerous developments in the coming years as restrictions on research are removed.