THE ECONOMIST CORNER: A READ ON THE CANNABIS INDUSTRY

Chocolate: edibles leading the way for higher growth in the cannabis industry.

Chocolate: edibles leading the way for higher growth in the cannabis industry.

The Economist Corner:  The Elites go all in for Cannabis

In what strikes me as an “a ha” moment The Economist  takes a serious look at the growing cannabis industry with the article Pot of Gold, America’s cannabis industry prepares for new highs.

Any doubts about where the Economist stands on cannabis are erased with the statement they end the article with: ” Colorado offers a tantalizing glimpse of the future: there are more cannabis dispensaries in the state than there are Starbucks coffee outlets”

“Tantalizing.” Hm. This piece appears after both the British Medical Journal and The Global Commission on Drug Policy (which includes Sir Richard Branson on its board) recently called for the legalization of “illicit” drugs.

The Economist labels the fed’s reluctance to legalize cannabis across the board as “dispiriting,” and then speculates about the prospects for the future . What will the President Elect’s administration  do about cannabis. Will they keep it way it is now? Get tough? No one knows.

Considering his statements about state’s rights, not to mention more pressing matters related to the various things the President Elect brought up during his campaign, it doesn’t appear that stopping the  cannabis roll-out would be a high priority. We’ll see if less regulations will allow banks to move forward in the industry.

At this point as the Economist says, about 60% of the population is already living in areas where cannabis can be legally consumed- with at least 32 million people using cannabis.

This article’s a good primer on the business prospects for the industry. They quote a principal with Privateer Holdings, a private equity company whose focus is on the cannabis industry saying, “It’s not often you see an industry and you know the inevitability of it.”

He’s right of course. But there are still a few hurdles to overcome before the industry explodes like observers expect it too. For one thing banks are not into making loans too or handling money for companies that actually grow and “touch” the plant.

The cannabis companies that do grow distribute and sell in their own stores can’t operate across state lines. And they can’t take the usual deductions on taxes-which reduces margins and is especially hard on the smaller operations.  But none of these things are slowing the rate of new companies entering the cannabis industry.

What I like about this article is that it discusses some of the opportunities for companies that don’t actually handle the cannabis itself- similar to what I did in previous posts on Colorado Cannabis stores see:

http://arcaneword.com/cannabis-shops-in-co-part-1-a-review-store-layout-visual-merchandising-transactions/

http://arcaneword.com/cannabis-shops-in-co-part-2-a-review-store-layout-visual-merchandising-transactions/

http://arcaneword.com/colorado-cannabis-stores-part-3-money-laws-distribution-comments-on-tinctures-and-topicals/

For instance the article mentions Kush Bottles in CA which is able navigate the maze of laws surrounding packaging for the industry. The piece also mentions Scotts Miracle Gro and its attempts to appeal to cannabis growers who are looking for great yields.

The piece also discusses some of the strategies cannabis companies use to address the varied demands of the industry-which The Economist compares to “traditional consumer businesses.”

But for me some of the most important points in this article are about the future-in terms of products and services- and for some even investment strategies.

In particular the article discusses the elephant in the room: cigarette makers. They’ve got the experience in dealing with complex regulations, data from their research into e-cigarettes and of course the money.

The latter means that companies like Native Root and LivWell  in Colorado-between them these two have over 30 stores -would be prime targets for buy outs from cigarette producers like R.J. Reynolds.  So it’s easy to envision well-funded companies forming with a specific exit strategy designed to capitalize on the investments cigarette companies will be making in the future.

The ma and pa stores that initially opened up the industry are already in decline as the chains that have sprung up are better capitalized and more attuned to the direction of the market. Take the store I saw in Pueblo, CO, it was focused on the actual bud itself rather than edibles and other non-smoking cannabis products. It felt old fashioned with its large mason jars on simple shelves behind the counter whereas the stores in Boulder were slick and featured all kinds of other cannabis products. And had more assertive people at the counters. Demographics matter.

The market share for cannabis buds to be smoked is going down not up.  The latest figures show that the sales of bud have fallen from 68% to 57% over the last year or so.   Instead as The Economist says, “the processed versions of cannabis,”… tinctures and edibles…., “are on the rise.”

Chocolates, lollipops, biscuits and other food –like substances represent the future. These are the high trending products in the cannabis industry.  In Colorado there’s even a food truck that specializes in offering an edibles menu.  And then there are the gatherings happening in OR and CO that feature cannabis infused gourmet meals that participants pay a set fee to attend- which involve both eating foods with cannabis and smoking in the traditional way.

Over the last few weeks I’ve sent several articles about these kinds of dinners to my brother, a five star chief who lives in NYC-suggesting he explore this area.

With both CA and MA along with a couple of other states having just approved recreational cannabis critical mass just got a boost- the momentum’s there.

And while the biggest profits come from touching the cannabis-there are other entry points into this industry…and room to invent more..anyone who provides services and products to grocery stores and other retail concerns could find opportunities if they’re willing to deal with the exacting laws around cannabis regulation.

Purists are going to deride the corporate nature of the industry. It doesn’t look like that can be stopped.  But they might put their efforts into lobbying states and  the Feds about the inalienable right of the individual to cultivate their own plants if they desire..

One special note: today marks the 53rd anniversary of JFK’s passing.

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