Why Derivative Cannabis Products is a Good Business
Understanding the ever-evolving market of the cannabis industry is essential if you’re planning on opening up a cannabis-related business in the future. Taking note of trends, past and present scenarios, as well as a host of regulatory issues is critical in deciding ‘where’ you should be investing your money.
Currently, flower still dominates as the most “solicited” product (50% market share) within the recreational sector. Concentrates (23%) and edibles (12%) follow in terms of recreational purchases since recording started. Analyzing these trends can give you some indication on where to invest your money in the future.
However, while “flower” is still the preferable purchase for consumers, there are other factors you need to consider before deciding, “I’m opening up a dispensary” or “dedicating to selling buds”. For instance, one of the biggest key selling points when it comes to cannabis flower is “potency”. For some reason, the market equates “potency” with “quality”. Thus, one of the most common questions in a cannabis dispensary relates to “how potent the weed is”.
While “potency” is not an indication of “quality”, most growers need to dedicate some of their grow space to “high-potency” pot in order to “stay competitive” within the marketplace. This despite the fact that most consumers prefer, at least in principle, less potent pot according to some surveys. I’m not saying that this is correct, however, this is the data derived from certain sample groups.
Another factor to consider is “price fluctuations” when it comes to flower. In some places, cannabis that has a THC content of 30% can cost roughly $2000 per pound where as 25% could cost $1200 for a pound. This is if the market is at nominal levels. However, in the case of Oregon, where there was an “oversupply” of cannabis, the price per gram dropped dramatically. Even highly potent weed dropped in prices significantly.
If you operate a “flower-based” cannabis business, and have a small margin of profits, market fluctuations like that could be tricky water to navigate.
Now that we have a clearer picture of the “cannabis flower market”, let’s take a look at another potential (and more profitable) sector within the cannabis industry – Derivatives.
Why the BIG Money is in Cannabis Derivatives
While the flower marketplace has seen dramatic ups and downs in terms of price and accessibility, the derivative and edible market is much more stable. Even in places such as Oregon, where there was an oversupply problem, the edible and concentrate market was virtually unscathed.
Prices remained somewhat within reasonable margins and the fluctuations were minimal. This means, despite an influx of buds on the market, derivatives seem to maintain price stability (currently)
But it’s important to define “cannabis derivatives” in order to understand the scope of the marketplace in the future.
A “cannabis derivative” is anything that is “non-flower”. Under this category we include, edibles, concentrates, infused beverages, vapables, and topical products.
While currently the market is predominantly “flower-friendly”, the derivative market is far less mature than the flower market. In fact, only recently have we seen major players placing bets on the derivative market with massive companies such as Coca Cola talking with cannabis companies such as Aurora Cannabis. Even though nothing is “set in stone” yet, we can already see market interest in cannabis-derived products.
Currently, the major hurdle between a full-scale derivative takeover is the federal government’s denial of the cannabis industry. This has kept multi-billion dollar corporations at bay from “buying” into the industry.
However, we have seen an increase in cannabis related products from drinks, to foods, to extracts; all becoming more elaborated and catered to the needs of the consumers. It will take a few years to scale up the efforts, but eventually there will be a “cannabis-derived” product on every shelf in every store, from lip balms to erotic lotions, edibles and a host of other products.
Flower will always take up a large share of the overall market purchases, but it won’t maintain it’s 50% dominance over the next ten years. This will especially become true when companies figure out how to create a “consistent sensation or dose” with a particular product.
For instance, if a beverage-company can guarantee consistently that if you drink, one can of their beverages; it would be the same as “smoking a half a joint”. Once this consumer standard is met, it would be applicable to a host of other products.
Currently, the edible market is still not 100% reliable in terms of “experiential consistency” and the ability to “titrate” their consumption. For instance, eating a weed brownie might get you higher than you’d like to be, compared to a joint where you can decide how many tokes you take to achieve the level of euphoria you desire.
However, this will not be true forever. There are plenty of major cannabis brands spending millions in Research and Development to obtain the “consistent dose”. And once this is cracked, the market changes forever.
Why is this important to you?
Many of you reading are thinking about “doing something in the cannabis industry”. Having a dispensary is great, or growing a bunch of weed might be what you have in mind; however, it’s also a smart idea to think horizontally within the marketplace and identify other areas of impact.
The derivative market is poised to hold the largest market share in terms of revenue due to the fact it is far more versatile than flower. With buds, you get buds in different flavors and potencies; with derivatives, you can fill a supermarket with items that contain “cannabis”, from health, to beauty, food, textiles and a whole lot more – cannabis is far more than just the bud.
If you’re thinking of starting a business, you should also consider to perhaps rather focus on a particular product, because once the law allows the cannabis industry to thrive; big players will jump in production and distribution, while smaller players will have less competition (at first) on the derivative market.
Just something to consider.
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