Rising High: Exclusive talk with cannabinoid market research firm BDSA

BDSA CEO talks five-year cannabis forecast, challenges, opportunities and more

In this edition of "Rising High," The Fly conducted an exclusive interview with Roy Bingham, chief executive officer of BDSA, a Colorado-based cannabinoid market intelligence and consumer research firm. Here are some highlights:

CANNABIS SPENDING GROWTH: In February, BDSA released its updated five-year global legal cannabis market forecast and reported that global legal cannabis spending grew roughly 5% to $32B in 2022. “It was relatively low growth in the United States, which is about 85% of the market,” Bingham said.  “The U.S. actually only grew at 2.8% to be $26B and Canada grew faster at 11% to get it to about $4.1B.”

The CEO noted the growth rate in Canada is slower than it has been in the past and global legal cannabis spending slowed due to rapid price declines. “That route is the large majority of it,” he said. “Obviously there are some international markets but they’re all relatively small so far.”

2027 MARKET FORECAST: BDSA also forecast a compound annual growth rate of 13.2% from 2022 to 2027, resulting in a market size of $59.7B by 2027.

“That is still very dependent on the U.S. market growth, but also we’re expecting to see meaningful markets in Germany and Mexico in particular,” Bingham said. “You’re still going to see the United States market being the dominant market, about 75% of the total. Of that market, about $35B will be the U.S. adult-use market and about $9B will be the U.S. medical market.”

He said BDSA expects consistent growth in the United States, with a CAGR of about 11% over the forecast period. “That is very much due to the new markets that are coming on or have grown up in the recent years,” the CEO said, “And especially markets that have just started in adult-use like New York and New Jersey. Those will be major drivers of that overall growth during that period.”

He added the company has also seen a contraction in the big markets in the West like California, Colorado, Oregon, Arizona and Nevada. “We don’t see tremendous growth in those markets over the next five years,” Bingham said. “We see the engine of growth being the new markets in the East and to some extent, the Southeast.”

2023 GROWTH: Despite economic uncertainty and rising inflation, BDSA expects legal U.S. cannabis sales to grow 14% by the end of 2023.

“We see a lot of that being driven by the newly-legalized adult use markets and also some other ones that are coming on stream in 2023,” the CEO said. “For adult-use 2022, we had New Jersey and New York, who got some sales in the last days of the last year, as well as New Mexico, Rhode Island and Montana. We have already seen adult-use launch in Connecticut, expect to see adult-use sales in Missouri in 2023 and then on top of that, medical sales beginning in Alabama, Georgia, Kentucky, Mississippi and South Carolina.”

MARKET CONTRACTIONS: 2022 marked the first overall spending contraction in many mature U.S. markets, with California, Colorado, Nevada and Oregon suffering a combined spending decline of 12.7%, according to BDSA. The company expects to see a return to growth for most mature markets in 2024. “We saw price contraction in those mega-markets with California down 12%, Nevada down 14%, Arizona 19% and Colorado 6%,” Bingham said. “Even some of the newer markets like Massachusetts and Michigan had very substantial price reductions.”

Unit sales volume were also fairly flat in the major markets, he said, citing oversupply as a key factor in the contractions.  “A lot of it is do with oversupply plus supply from the illicit markets in those states,” the CEO said. “Competing with the illicit markets requires the regulated markets to lower their prices. They also managed to achieve much higher supply than had been the case previously and that is what drove down prices in the market where consumer demand was relatively flat.”

The oversupply problem still exists in some states, he said, but BDSA expects the issue to be less of a serious factor in 2023. “We don’t see price reductions as high as they were in 2022,” Bingham said. “We do see price reductions happening, but we see them happening in the newer markets. The more established markets have now got to low prices that are relatively stable.”

ADULT-USE SALES: By 2027, BDSA expects adult-use sales to contribute 78% of total global legal cannabis spend, up from 64% in 2022. U.S. legal cannabis spending is expected to grow at a CAGR of 11.2%, from $26.2B in 2022 to $44.6B in 2027.

“If you look at the growth by states, the big states are going to account for a lot of that,” the CEO said, “New York will add $2.6B to the growth and Florida is expected to contribute slightly less. The existing medical market in Florida is very strong and we think there will be adult use before the end of this time period in 2027. Even without it, the medical market is going to add at least $2B to the national picture.”

New Jersey will also add about $2B to the total, he said, adding that even mature markets like California will add over $1B. “Then there are the other markets that are just mentioned and are relatively new like Ohio, Missouri and Texas,” Bingham said.  “Texas is obviously a major laggard, but we think towards the end of our time horizon we will see meaningful medical use sales in Texas. And existing markets that are already fairly well-scaled like Pennsylvania and Illinois will continue to grow over this time period.”

BDSA forecasts the Canadian market will see 12% overall growth this year, becoming a $5.7B market by 2027 at a CAGR of 6.3%, he said. “It’s just a continuation of the trends that we’ve seen so far in Canada combined with the effects of market forces that are somewhat similar to what we’ve see in more mature states in the United States,” the CEO said. “Now that we’ve seen a lifecycle in states like Colorado for eight years, you can get a fairly good sense of what is going to happen in the individual provinces in Canada.”

Globally, cannabis markets beyond the U.S. and Canada are forecast to grow at a CAGR of 40% to $9.5B in 2027, up from $1.8B in 2022.

“The two bright areas for hope and expectation of significant growth are Germany and Mexico,” Bingham said. “It’s hard to know exactly when the German adult-use market will take off, but our expectation is perhaps Germany will break through and within a year there will be some other countries that follow suit. That is more towards the end of our time horizon.” Mexico is also grappling with regulatory change, he said, but BDSA expects it to become a substantial market as well.

INDUSTRY COST CUTS: Several companies have recently announced cost-cutting initiatives including reduced footprints and headcounts and the CEO said he believes the measures are happening more acutely in the cannabis space. “That is because the lack of capital to the industry,” he said. “Capital has really dried up because investors have not had much appetite to invest in any sector at the present time, let alone one that is deemed to be riskier than average.”

Bingham said companies that have grown rapidly are finding capital is way more expensive than it used to be and are therefore having to cut back on plans for expansion. “In some cases, they’re actually reducing their expenses primarily through layoffs,” he said, “But you’re also seeing quite a bit of rationalization going on with people exiting certain markets and certain activities in order to stabilize their cash flow. That is more acute than in most other industries and it will be a factor in consolidation in this space.”

ECONOMIC CONCERNS: When asked about how rising concerns around inflation and recession will impact the space, Bingham noted that a large majority of cannabis consumers purchase products to help with medical conditions.

“We’re all somewhere on the medical spectrum from very healthy to not very healthy,” he said. “People are using cannabis whether it is for sleep or anxiety or pain or many other conditions. They may be going into adult-use stores but those people are regarding cannabis consumption as very important. It is one of the last things that they are going to cut out or cut back on significantly when they feel a pinch in their pocketbooks. That’s one of the reasons, we and many others, expect cannabis to be relatively recession-resistant.”

LEGALIZATION: Following the mid-term elections, Republicans won control of the House of Representatives while Democrats retained control of the Senate. Although BDSA does not expect any comprehensive U.S. federal regulations on cannabis through 2027, the company does see a possibility of partial reform within the next few years. “We think that there may be progress with regard to banking reform and hopefully tax reform in this time horizon,” the CEO said. “We’re not expecting federal legalization to impact the market until the very end of our time horizon, but we see a lot of growth just because of the state regulatory pattern.” He added cannabis banking reform will certainly remove a lot of uncertainty within the industry. “I just had my own personal accounts closed by one of the big banks,” Bingham said. “They don’t cite any reason, they just do it. I’m sure most people that have any sort of profile in the cannabis industry have been through that experience.”

Cannabis businesses must have multiple banking accounts in case they get ensnared in these arbitrary processes, he said. “But the bigger factor is the availability of capital coming into the space and in conjunction with banking reform,” the CEO said. “One assumes there is going to be a change which enables institutional investors to come into the space. Cash flow, in terms of working capital finance from the conventional banking sector but also investment capital from longer-term investors, will be significant.”

CHALLENGES: When asked about the largest hurdles facing the cannabis space, Bingham pointed to the structural challenges created by regulations.

“Regulators are making it very difficult due to the lack of federal legalization and therefore having to have state-by-state markets,” he said. “Within the states, the regulatory environment is very problematic. California is a classic example of very high regulatory burdens, very high taxes and competition with the illicit market.”

The CEO noted black market competition is a huge factor in California but also plays a role in all markets. “It’s a very tough time to be operating a cannabis business in those mature markets,” he said. “What the big players are doing is entering in the less heavily licensed markets, where there are fewer licenses so they can have more sales through their individual channels.” 

Bingham noted the market in the U.S. will continue to grow at about 11% compound over the next five years. “That is faster than any other market I can think of,” he said, “So over the long-term if you hang in there, you’re well-capitalized and you have a good plan that you execute well, you’ll do very well in this space.”

OPPORTUNITIES: As the cannabis sector develops, the CEO said he sees the biggest opportunities for companies in the space in product innovation.

“New products are coming on that are better,” he said. “They’re more reliable, more predictable, more consistent and consumers are starting to recognize them and say that is the product I had a good experience with.” Companies and brands will need to differentiate themselves through the quality of their product, he said, as they scale up and get national coverage. “The majority of what we’re seeing now is expansion of the adult-use space, but there is research going on around cannabinoids and their benefits for people with a whole host of medical conditions,” he said. “Eventually, you will start to see breakthroughs with people identifying which cannabinoids have what effect on which conditions. That is a great innovation pipeline for the future whether it is cannabinoid products that are sold in the regulated channel or eventually as pharmaceuticals.”

CANNABIS/PSYCHEDELIC STOCKS: Publicly-traded companies in the space include Acreage Holdings (ACRHF), Aleafia Health (ALEAF), Atai Life Sciences (ATAI), Audacious (AUSAF), Aurora Cannabis (ACB), Avant Brands (AVTBF), Awakn Life Sciences (AWKNF), Ayr Wellness (AYRWF), Body and Mind (BMMJ), Cannara Biotech (LOVFF), Canopy Growth (CGC), Chicago Atlantic (REFI), Clever Leaves (CLVR), Columbia Care (CCHWF), Compass Pathways (CMPS), CordovaCann (LVRLF), Cresco Labs (CRLBF), Cronos (CRON), Curaleaf (CURLF), CURE Pharmaceutical (CURR), CV Sciences (CVSI), Cybin (CYBN), Delic Holdings (DELCF), Delta 9 (DLTNF), Entourage Health (ETRGF), Fire & Flower (FFLWF), Flora Growth (FLGC), Flowr Corporation (FLWPF), General Cannabis (CANN), BZAM (BZAMF),Greenlane (GNLN), Green Thumb (GTBIF), Goodness Growth (GDNSF), GrowGeneration (GRWG), Hemp (HEMP), HEXO (HEXO), High Tide (HITI), India Globalization Capital (IGC),  Indiva (NDVAF), Innovative Industrial Properties (IIPR), InterCure (INCR), IM Cannabis (IMCC), Wellbeing Digital (KONEF), Khiron Life Sciences (KHRNF), Lowell Farms (LOWLF), Lotus Ventures (LTTSF), MediPharm Labs (MEDIF), MedMen (MMNFF), NewLake Capital (NLCP), Organigram (OGI), Planet 13 (PLNHF), Reunion Neuroscience (REUN),  Revitalist (RVLWF), RIV Capital (CNPOF), Relmada (RLMD), RYAH Group (RYAHF), Safe Harbor (SHFS), SLANG Worldwide (SLGWF), Small Pharma (DMTTF), SNDL (SNDL), Sproutly (SRUTF), Skye Biosciences (SKYE), Stem Holdings (STMH), Sunniva (SNNVF), TerrAscend (TRSSF), Tetra Bio-Pharma (TBPMF), Tilray (TLRY), Tryp Therapeutics (TRYPF), Trulieve (TCNNF), Verano (VRNOF), Village Farms (VFF), Wesana Health (WSNAF), Zynerba (ZYNE) and 4Front Ventures (FFNTF).

Keywords: cannabis, weed, stocks, marijuana, cultivation, legalization, CBD, THC, hemp, psychedelics, ketamine, psilocybin, LSD, MDMA