​The Importance of Data on the Cannabis Industry

Bethany Gomez |

Image via Cannabis Training University/Wikimedia

Cannabis is one of the most complicated, quickly changing and opaque industries in the country. All of the headlines on this industry are on massive sales and growth in the industry but the real story is much more complicated. Revenue most definitely does not equate to profit, particularly in this industry with restrictive regulations, inefficient supply chain requirements, limited ability to scale and 280E increasing tax burdens on cannabis businesses.

With increasing levels of competition investors and entrepreneurs must be highly strategic if they are going to be successful. Reliable market research and analysis on the cannabis industry is a must before deploying capital into the space and savvy investors will have a data driven understanding of each state’s market dynamics, competitive landscape and target consumer segment.

All cannabis markets are not created equal. It is important to look at the overall size of a market, but even more important is the potential for future growth in your category or region over the coming years. Many of the newer markets coming online are unlikely be profitable for the foreseeable future and many of the more established markets are going to see modest enough growth that it makes the risk of investing in this space unattractive for investors.

For 2017, overall market size for cannabis markets in US states range from $1.7 billion in California to $2.8 million in New Hampshire and five year forecast CAGRs range from 237% in Florida to only 5% in Delaware. Furthermore, every state is a distinct market, meaning major players in one state often have a very limited understanding of what is happening in neighboring markets. There is definitely a cannabubble, and those immersed in the industry in states like Colorado and California have quickly forgotten what the landscape for marijuana is in states where cannabis is prohibited. This creates a disconnect from potential consumers, creating difficulties when attempting to expand into new states and makes for excessively optimistic business plans.

It is difficult for those outside the industry to understand the modern cannabis consumer, their needs and identify gaps in the market. Historic stoner stereotypes no longer apply in most circumstances and consumers increasingly have the ability to be picky. But legal cannabis is still a new phenomenon and consumption patterns are far from stable – innovation abounds and people are trying out new products for a short period of time then switching to the next big thing, mixing with some of their core standby's.

According to Brightfield Group Data, there are more than 1560 brands of infused cannabis products on the market as of June 2017 and 69% of consumers regularly use at least 2 different types of products; 34% regularly use at least three. There is increasing segmentation but many leading brands are targeting the same consumer segments, leaving vast segments of the landscape underserved.

Strong data, on cannabis markets, consumers and the competitive landscape, will help drive brands to make effective decisions to drive their strategic direction and help investors to ensure they are identifying the optimal places to put their money.

By Bethany Gomez, who is the Director of Research for Brightfield Group, a cannabis-focused market research firm providing accurate and comprehensive consumer, brand, and market insights in the industry.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

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